TMV - Long-Term Treasury Bear 3x ETF. How It Moves Opposite to TMF During Rising Rate Environments

This article takes about 5 minutes to read

TMV Basics and Its Relationship with TMF

TMV (Direxion Daily 20+ Year Treasury Bear 3X Shares) is an inverse ETF targeting -3x the daily return of the ICE U.S. Treasury 20+ Year Bond Index. With a 1.01% expense ratio, managed by Direxion. When interest rates rise, bond prices fall, and TMV profits.

TMF (Direxion Daily 20+ Year Treasury Bull 3X) targets +3x the same index, profiting during rate declines. TMV and TMF are perfect mirror images; when one rises, the other falls.

Long-term treasuries (20+ years) have a duration of approximately 17 years, meaning a 1% rate increase causes bond prices to fall roughly -17%, and TMV to rise approximately +51% (= 3 x 17%). This extreme duration makes TMV a powerful tool during rising rate environments.

TMV Performance During the 2022 Rate-Hiking Cycle

2022 was historic as the Fed raised the policy rate from 0.25% to 4.50% in rapid succession. The 10-year Treasury yield rose from 1.5% to 4.2%, and the 20+ year Treasury index recorded a devastating -31% annual decline.

TMV returned over +100% in this environment. The theoretical return of 3 x 31% = +93% was actually exceeded because the unidirectional rate rise minimized volatility decay. Meanwhile, TMF suffered a catastrophic -73% loss over the same period.

2022's TMV represents a rare case where an inverse ETF 'works correctly.' Normally, inverse ETFs decay long-term, but when the underlying asset moves strongly in one direction, trend profits overwhelm volatility decay. The 2022 rate rise was precisely such a unidirectional trend.

Bond Duration and Leverage Interaction

Long-term Treasury duration of 17 years means a 1% rate change moves prices by 17%. Applying 3x leverage means a 1% rate change moves TMV (or TMF) by 51%. Effectively, this creates 51x leverage on interest rate movements.

This extreme leverage generates enormous returns when rate predictions are correct, but catastrophic losses when wrong. During 2023 when rates temporarily declined, TMV fell over -30% within weeks.

From a compound interest perspective, duration times leverage multiplier determines effective volatility. TMV's daily volatility is approximately 3-4%, comparable to TQQQ's 4-5%. This means TMV's volatility decay rate is similar to equity leveraged ETFs, requiring the same caution for long-term holding.

TMF/TMV Switching Strategy Based on Rate Forecasts

A strategy of switching between TMF and TMV based on rate forecasts is theoretically attractive. Hold TMV during hiking cycles, switch to TMF during cutting cycles. Since rate cycles typically move in 2-3 year waves, switching frequency is low.

However, precisely predicting rate turning points is extremely difficult. In 2023, predictions of 'rate cuts this year' were repeatedly proven wrong, and investors who bought TMF early suffered significant losses. Market consensus forecasts are frequently incorrect.

A more realistic approach is switching after the Fed's policy rate has actually turned. You miss the 'head' of the turning point, but capturing the 'body' of the cycle provides sufficient returns. In 2022's hiking cycle, holding TMV from the first hike (March) still delivered over +80% returns.

Why Inverse Bond ETFs Are 'Less Bad' Than Inverse Equity ETFs

Since equity markets trend upward long-term, equity inverse ETFs (SQQQ, SPXS, TZA) inevitably decay over time. But bond markets do not necessarily have a long-term uptrend. During periods of rising rate trends, bond prices trend downward, and TMV earns trend-direction profits.

The 40 years from 1980 to 2020 were a rate-declining trend, favoring TMF (bull) and disadvantaging TMV (bear). However, since 2022, there are suggestions that rates have entered a structurally higher 'new regime.' If so, TMV could potentially generate positive returns even long-term.

However, this depends on the prediction that rates will continue rising. Rate forecasting is frequently wrong even among experts, so justifying long-term TMV holding requires considerable conviction. When uncertainty is high, limiting to short-to-medium-term holding is prudent. Bond investing references are recommended for systematically learning the relationship between rates and bond prices.

Investment Judgment in the Current Rate Environment

The 2024-2025 rate environment focuses on when the Fed begins cutting. Rate cuts favor TMF; rates staying elevated favor TMV. Markets are pricing in cuts, but inflation stickiness creates risk of delayed cuts.

TMV investors should consider these scenarios: if inflation reaccelerates and the Fed is forced into additional hikes, TMV could return +50%+. Conversely, if recession forces rapid cuts, TMV could suffer -50%+ losses.

When you lack conviction on rate direction, hold neither TMV nor TMF. Bond leveraged ETFs are 'bets' on rate predictions, and wrong predictions amplify losses 3x. Strictly managing position size according to conviction level is essential.

TMV Investment Summary

TMV is one of the most efficient tools for betting on rising rates. In environments like 2022 where rates move strongly in one direction, it can generate +100%+ returns. Unlike equity inverse ETFs, it has the potential for positive long-term returns as long as the rate-rising trend continues.

However, do not underestimate the difficulty of rate forecasting. Fed policy shifts, inflation dynamics, and business cycles interact in complex ways to determine rates. TMV investment is limited to investors with clear rate outlooks who can tolerate losses if those outlooks prove wrong.

The choice between TMF and TMV should be based on understanding rate cycles. TMV during hiking cycles, TMF during cutting cycles. At turning points, avoid both and wait for directional clarity before taking positions. This discipline is the key to surviving bond leveraged ETFs.