A New ETF Is Adding Leverage To The Bond Market

With U.S. interest rates still low by historical standards and several other marquee developed markets sporting negative sovereign debt yields, fixed income investors are turning to other areas to find yield. The resurgence in emerging markets assets has led some bond investors to higher-yielding developing world bonds.

But there is a way to add some juice to the emerging markets bond trade. The Direxion Daily Emerging Markets Bond Bull 3X Shares EMBU debuted recently as the first leveraged exchange traded fund dedicated to emerging markets bonds.

“"Emerging market bonds can offer the opportunity to gain higher yield and return, which has been the case recently," said Direxion Managing Director Sylvia Jablonski in a statement. "Traders often look to emerging market bonds as a means to support or express bullish views on the prospect for growth and development of these nations." 

More On EMBU

EMBU will seek to deliver triple the daily returns of the J.P. Morgan EMBI Global Core Index.

That index “is a U.S. Dollar-denominated emerging markets debt index that tracks the total return performance of actively-traded external debt instruments in emerging market countries. The Index limits the weights of countries with higher outstanding debt and increases the weights of countries with lower outstanding debt,” according to Direxion. 

EMBU's index does not allocate more than 6 percent to any of its geographic weights, ensuring a broad swath of countries are represented. Mexico, Turkey, Indonesia, Russia and the Philippines are the largest country weights in the new ETF.

Familiar Advice

While bonds and the related ETFs are often treated as buy-and-hold instruments, the same should not be true of EMBU. After all, this is a leveraged ETF and no leveraged ETF should be used as a long-term investment.

“Like all leveraged ETFs, this Direxion product is intended only for investors with an in-depth understanding of the risks associated with seeking leveraged investment results, and who plan to actively monitor and manage their positions. There is no guarantee that this Fund will meet its objective,” according to Direxion.

EMBU is the fifth triple-leveraged bond fund in Direxion's lineup and the first to focus on ex-US bonds. 

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