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Inflation Easing Could Drive Gains for Leveraged Treasury ETFs

By Markets Desk · 2026-09-20 · 2 min read
A stack of paper currency and a calculator resting on a wooden surface.
Illustration: Tradingbird

US 10-year Treasury yields sit near 20-year highs. Inflation data suggests a potential pivot that could reverse recent bond market losses.

US 10-year Treasury yields remain near two-decade highs. The Federal Reserve increased rates by 25 basis points on September 16. Chair Kevin Warsh stated that fighting inflation is the top priority. The central bank will continue raising rates if necessary to achieve this goal. This aggressive stance has suppressed bond prices. Consequently, leveraged bearish Treasury funds have seen recent gains. The Direxion Daily 7-10 Year Treasury Bear 3X Shares (TYO) is up 6.45% over the past month.

Market analysts suggest a shift in inflation trends could reverse this dynamic. If inflation cools, bond yields may decline. This scenario favors bullish Treasury instruments. The Direxion Daily 7-10 Year Treasury Bull 3X Shares (TYD) is designed for this environment. This fund targets 300% of the daily performance of the ICE US Treasury 7-10 Year Bond Index. It is not a buy-and-hold instrument. It suits short-term traders seeking leveraged exposure.

Inflation Forecasts Signal Potential Rate Cuts

Morningstar analyst Preston Caldwell projects inflation will drop to 2.4% in 2027. The average inflation rate is expected to reach 2.0% between 2028 and 2030. This downward trend is a key factor for the Federal Reserve. It may allow the bank to resume interest rate cuts. The September 16 hike was the most recent action. Resolving the conflict in Iran would also ease inflation. Surging oil prices have driven up consumer costs. Easing trade tariffs could further reduce prices. These factors combined could lower bond yields.

Housing Costs Show Signs of Deceleration

Housing inflation in the CPI and PCE indexes responds with a lag. Market rents rose significantly in 2021 and 2022. Official housing inflation remained high at 5.40% in 2024. It decelerated to an average of 3.90% in 2025. Caldwell expects a further drop to 3.2% in 2026. The rate should reach 3.0% in 2027. This trend supports the case for lower overall inflation. Traders should monitor these data points for TYD opportunities.

Market Context and Source Analysis

The current bond market environment is driven by persistent inflation concerns. The Fed's commitment to price stability remains the primary driver of yields. Leveraged ETFs like TYD and TYO amplify daily moves in Treasury prices. Investors must understand the daily reset mechanism. These funds are not suitable for long-term holding. The analysis provided by GN markets/inflation (en-US) highlights the specific catalysts for potential yield declines. Monitoring inflation data remains critical for trading decisions.

Based on reporting by ETF Trends, compiled by the Tradingbird desk.

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