The world’s first meme bond (ish)?
We’ll send you a myFT Daily Digest email rounding up the latest Capital markets news every morning.
A year ago Gary Gensler was in London, and in a speech on the SEC efforts to reform the fixed income markets jokingly lamented that “there are no meme bonds, at least not yet”.
So, it’s not strictly speaking a plain vanilla bond . . . but Alphaville reckons that this could a good contender?
The cocaine bear in question is called the Direxion Daily 20+ Year Treasury Bull 3X Shares ETF. For those that don’t speak financial gobbledegook, that means that its an exchange-traded fund managed by Direxion that uses leverage to deliver three times the daily return of long-term Treasuries. You can read its prospectus here.
The problem with leveraged ETFs is that they also get absolutely smashed when the market moves in the opposite direction. And in the long run, high management fees and the constant rolling of the underlying derivatives tends to incinerate money. They’re basically only useful as short-term trading instruments for bros with eToro and Robinhood accounts.
For example, TMF (the aforementioned ETF’s stock market ticker) has an 1.06 per cent annual expense ratio even before the cost of the roll, compared to 0.03-0.1 per cent for plain vanilla equity ETFs. And then there’s the fact that duration-heavy, rate-sensitive Treasuries were brutalised last year.
Here is the performance of TMF over the past five years:
But as Bloomberg’s Katie Greifeld points out, TMF suddenly seems to have sucked in a lot of money from retail punters betting that the fabled Fed pivot is coming.
Sizewise its almost $2bn of assets under management is still dwarfed by its unleveraged cousin, BlackRock’s $36bn iShares 20+ Year Treasury Bond ETF, or TLT. Underscoring the peaking-rates-bet frenzy, TLT has taken in over $10bn this year.
But TLT is probably just too sedate to ever qualify as the first ever meme bond. To use Katie’s terminology, its cocaine bear energy is de minimis. While it’s still early days for TMF, if performance starts matching and eventually reinforcing flows, you could see it gain more traction on Reddit.
The fact that it’s actually taken in a net $2.4bn of capital since inception and incinerated half a yard of it already is certainly very meme-y.