Notice of Index Modifications: Ferrari ETPs

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Author

Violeta Todorova

Date

The Bonds Bear Market Could Turn Into Opportunity

Your capital is at risk if you invest. You could lose all your investment. Please see the full risk warning here.

During the September meeting, the Federal Reserve held interest rates steady, with Fed members saying the central bank could keep rates elevated for much longer than previously expected. The Fed maintained its forecast for another rate hike by year end and reduced the number of rate cuts expected in 2024 to two from four previously.

The Federal Reserve has raised its key interest rate 11 times since March 2022, taking it to a targeted range of 5.25%-5.5%. Since the September meeting, the 20-Year Treasury yield has risen about 0.25%, in effect pricing in the rate increase policymakers indicated then.

The higher for longer message from the Fed triggered a massive sell off in bond markets, sending the 20-Year Treasury yields higher to a 16-year high of 5.25% last week. Higher yields tighten financial conditions and threaten to curb growth, thus helping the Fed to tame inflation.

The surge in U.S. treasury yields has sparked much anxiety among investors, given expectations that interest rates have finally peaked. Following the sharp rise in yields throughout September, earlier this week several Fed members have adopted more dovish tone on further rate hikes, causing a pull back to 4.87%.

A graph of stock market

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Source: TradingView, 20 Year Treasury Yields

On Wednesday the Federal Reserve released the minutes of the Federal Open Market Committee (FOMC) meeting that was held on the 20 th of September 2023. The document noted that all members of the rate-setting FOMC agreed they could “proceed carefully” on future decisions, which would be based on incoming data.

A point of complete agreement was the belief “that policy should remain restrictive for some time” until the FOMC is confident that inflation is moving towards its goal. A number of members commented that, with the policy rate likely at or near its peak, the focus of monetary policy decisions should shift from how high to raise the policy rate to how long to hold the policy rate at restrictive levels.

While the meeting decided against a rate hike, in the dot plot of individual members’ expectations, two-thirds of the committee indicated that one more increase would be needed before the year end.

U.S. Treasury yields rebounded strongly on Thursday after data showed U.S. consumer prices increased more than expected in September, which underpinned the views of some Fed members that U.S. interest rates may need to remain higher for longer.

It appears that most probably there is not enough in the CPI report to suggest that the FOMC may need to tighten policy in November; however, the higher readings justify the message that policy needs to remain tighter for longer, with the prospect of another rate hike still being kept on the table. Following Thursday’s consumer prices report futures markets suggest a 40% probability of a U.S. rate increase in December, compared with a 28% chance seen before the report.

A graph of stock market

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Source: TradingView, iShares 20+ Year Treasury Bond ETF

The iShares 20+ Year Treasury Bond ETF (TLT), which is a proxy for the long-term Treasury bond market, reached a low of $84.06 on Friday – its lowest price level since 2007. While at this point still there is no clear reversal signal evident on the chart, TLT has attracted a record $17.6 billion so far this year in a high conviction bet that interest rates are near a peak and prices are near a bottom.

As bond yields move in the opposite direction of bond prices, investors can use long-term Treasury bond ETFs like TLT to capture significant price appreciation once interest rates start to decline.

With yields on the 20-year Treasury note around the 5% mark at present, investors’ appeal to high interest distributions amid the prospect for a significant price appreciation once the economy slows down is undeniable.

With the current yield on the 20-year Treasuries of 5%, TLT’s risk/reward ratio has become very attractive. A drop in interest rates of 50-basis points from here would deliver a much greater return over the next 12 months, than the loss an unlikely 50-basis point rate rise would produce.

Investors are also optimistic that the U.S. is likely to enter a recession in 2024, which in turn should exert downward pressure on yields. Lower yields would send long end bond prices higher, as such TLT is seen as a hedge against recession.

Leverage Shares 5x 20+ Year Treasury Bond ETP tracks and provides magnified exposure to the performance of TLT.

Websim is the retail division of Intermonte, the primary intermediary of the Italian stock exchange for institutional investors. Leverage Shares often features in its speculative analysis based on macros/fundamentals. However, the information is published in Italian. To provide better information for our non-Italian investors, we bring to you a quick translation of the analysis they present to Italian retail investors. To ensure rapid delivery, text in the charts will not be translated. The views expressed here are of Websim. Leverage Shares in no way endorses these views. If you are unsure about the suitability of an investment, please seek financial advice. View the original at

Your capital is at risk if you invest. You could lose all your investment. Please see the full risk warning here.

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By clicking you agree to the Terms and Conditions displayed.

Terms and Conditions

Notice

If you are not classified as an institutional investor, you will be categorised as a private/retail investor. At this time, we cannot send communications directly to private/retail investors. You are welcome to view the contents of this website.

If you are an ‘Institutional investor’, you affirm either that you are a Per Se Professional Client, or that you wish to be treated as an Eligible Counterparty Client, both as defined under the Markets in Financial Instruments Directive, or an equivalent in a jurisdiction outside the European Economic Area.

Risk Warnings

The value of an investment in ETPs may go down as well as up and past performance is not a reliable indicator of future performance. Trading in ETPs may not be suitable for all types of investor as they carry a high degree of risk. You may lose all of your initial investment. Only speculate with money you can afford to lose. Changes in exchange rates may also cause your investment to go up or down in value. Tax laws may be subject to change. Please ensure that you fully understand the risks involved. If in any doubt, please seek independent financial advice. Investors should refer to the section entitled “Risk Factors” in the relevant prospectus for further details of these and other risks associated with an investment in the securities offered by the Issuer.

This website is provided for your general information only and does not constitute investment advice or an offer to sell or the solicitation of an offer to buy any investment.

Nothing on this website is advice on the merits of any product or investment, nothing constitutes investment, legal, tax or any other advice nor is it to be relied on in making an investment decision. Prospective investors should obtain independent investment advice and inform themselves as to applicable legal requirements, exchange control regulations and taxes in their jurisdiction.

This website complies with the regulatory requirements of the United Kingdom. There may be laws in your country of nationality or residence or in the country from which you access this website which restrict the extent to which the website may be made available to you.

United States Visitors

The information provided on this site is not directed to any United States person or any person in the United States, any state thereof, or any of its territories or possessions.

Persons accessing this website in the European Economic Area

Access to this site is restricted to Non-U.S. Persons outside the United States within the meaning of Regulation S under the U.S. Securities Act of 1933, as amended (the “Securities Act”). Each person accessing this site, by so doing, acknowledges that: (1) it is not a U.S. person (within the meaning of Regulation S under the Securities Act) and is located outside the U.S. (within the meaning of Regulation S under the Securities Act); and (2) any securities described herein (A) have not been and will not be registered under the Securities Act or with any securities regulatory authority of any state or other jurisdiction and (B) may not be offered, sold, pledged or otherwise transferred except to persons outside the U.S. in accordance with Regulation S under the Securities Act pursuant to the terms of such securities. None of the funds on this website are registered under the United States Investment Advisers Act of 1940, as amended (the “Advisers Act”).

Exclusion of Liability

Certain documents made available on the website have been prepared and issued by persons other than Leverage Shares Management Company. This includes any Prospectus document. Leverage Shares Management Company is not responsible in any way for the content of any such document. Except in those cases, the information on the website has been given in good faith and every effort has been made to ensure its accuracy. Nevertheless, Leverage Shares Management Company shall not be responsible for loss occasioned as a result of reliance placed on any part of the website and it makes no guarantee as to the accuracy of any information or content on the website. The description of any ETP Security referred to in this website is a general one. The terms and conditions applicable to investors will be set out in the Prospectus, available on the website and should be read prior to making any investment.

Leverage Investment

Leverage Shares exchange-traded products (ETPs) provide leveraged exposure and are only suitable for experienced investors with knowledge of the risks and potential benefits of leveraged investment strategies.

Cookies

Leverage Shares Management Company may collect data about your computer, including, where available, your IP address, operating system and browser type, for system administration and other similar purposes (click here for more information). These are statistical data about users’ browsing actions and patterns, and they do not identify any individual user of the website. This is achieved by the use of cookies. A cookie is a small file of letters and numbers that is put on your computer if you agree to accept it. By clicking ‘I agree’ below, you are consenting to the use of cookies as described here. These cookies allow you to be distinguished from other users of the website, which helps Leverage Shares Company provide you with a better experience when you browse the website and also allows the website to be improved from time to time. Please note that you can adjust your browser settings to delete or block cookies, but you may not be able to access parts of our website without them.

This website is maintained by Leverage Shares Management Company, which is a limited liability company and is incorporated in Ireland with registered offices at 2 Grand Canal Square, Grand Canal Harbour, Dublin 2.

By clicking you agree to the Terms and Conditions displayed.