The world’s first meme bond (ish)?

A yr in the past Gary Gensler was in London, and in a speech on the SEC efforts to reform the mounted earnings markets jokingly lamented that “there aren’t any meme bonds, at the least not but”.

So, it’s not strictly talking a plain vanilla bond . . . however Alphaville reckons that this might a very good contender?

The cocaine bear in query is known as the Direxion Every day 20+ Yr Treasury Bull 3X Shares ETF. For people who don’t communicate monetary gobbledegook, that implies that its an exchange-traded fund managed by Direxion that makes use of leverage to ship 3 times the each day return of long-term Treasuries. You may learn its prospectus right here.

The issue with leveraged ETFs is that additionally they get completely smashed when the market strikes in the other way. And in the long term, excessive administration charges and the fixed rolling of the underlying derivatives tends to incinerate cash. They’re mainly solely helpful as short-term buying and selling devices for bros with eToro and Robinhood accounts.

For instance, TMF (the aforementioned ETF’s inventory market ticker) has an 1.06 per cent annual expense ratio even earlier than the price of the roll, in comparison with 0.03-0.1 per cent for plain vanilla fairness ETFs. After which there’s the truth that duration-heavy, rate-sensitive Treasuries had been brutalised final yr.

Right here is the efficiency of TMF over the previous 5 years:

However as Bloomberg’s Katie Greifeld factors out, TMF instantly appears to have sucked in a lot of cash from retail punters betting that the fabled Fed pivot is coming.

Sizewise its virtually $2bn of property beneath administration remains to be dwarfed by its unleveraged cousin, BlackRock’s $36bn iShares 20+ Yr Treasury Bond ETF, or TLT. Underscoring the peaking-rates-bet frenzy, TLT has taken in over $10bn this yr.

However TLT might be simply too sedate to ever qualify as the primary ever meme bond. To make use of Katie’s terminology, its cocaine bear vitality is de minimis. Whereas it’s nonetheless early days for TMF, if efficiency begins matching and finally reinforcing flows, you may see it achieve extra traction on Reddit.

The truth that it’s really taken in a internet $2.4bn of capital since inception and incinerated half a yard of it already is definitely very meme-y.

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