IVOL ETF

IVOL offers retail exposure to advanced interest rate derivatives typically only available to institutional traders, providing a way to bet on the steepening yield curve and macro dynamics. IVOL's holdings include TIPS and options on constant maturity swaps. We deconstruct these holdings and go through the implications. Performance is tied to the steepening yield curve, inflation expectations, and macroeconomic factors, making it a pure play macro bet.

The ETF IVOL invests in TIPS bonds and curve steepeners, but may face challenges due to the inverted yield curve caused by the Fed's stance on inflation. It is unlikely to perform well until macroeconomic conditions improve.

The Quadratic Interest Rate Volatility and Inflation Hedge ETF is breaking out to the upside amid falling real yields and a steepening yield curve. IVOL should benefit from the ongoing deterioration in government finances, which should drive real yields lower across the board and a normalisation of the yield curve. The main risk comes from the ETF underperforming its stated objectives.

The Krane Shares Trust - Quadratic Interest Rate Volatility and Inflation Hedge ETF is a unique exchange traded fund. The ETF contains two main risk factors, namely a long position in US TIPS bonds and a bet on the normalization of the 2s10s curve after a historic inversion. The fund's performance is expected to improve as the Fed maintains a neutral stance and the 2s10s spread narrows.

The Quadratic Interest Rate Volatility and Inflation Hedge ETF is a contrarian trade that bets on 2-year US bond yields falling relative to 10-year inflation expectations. The IVOL ETF holds a portfolio of inflation-linked bonds and options to hedge against a steepening yield curve. Speculators are heavily betting on further upside in 2-year yields, but I strongly expect 2-year yields to fall below long-term inflation expectations in the next 12-24 months.

Over the past year, inflation has become a pressing concern for many Americans. There has been a spike in everything from mortgage and interest rates on vehicles to everyday prices of consumer goods and food.

The Quadratic Interest Rate Volatility and Inflation Hedge ETF is a good buy due to the inverted bond yield curve and high yield on inflation-linked bonds. IVOL can benefit from yield curve steepening or declining real bond yields and offers a hedge against a decline in equity market risk. Two main macroeconomic scenarios that could drive a recovery in IVOL are a sharp drop in short-term rates due to recession or a recovery in inflation expectations.

The death knell for First Republic Bank could be tolling as shares continue to plummet on Friday. Banking sector stress and fears of contagion led to a flight to treasuries and other safe havens mid-March and benefited funds like the Quadratic Interest Rate Volatility and Inflation Hedge ETF (IVOL) that invest in TIPS and along the yield curve.