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Yields Hit Multi-Year Highs: Short Treasury With These ETFs
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The U.S. Treasury market has been out of investors’ favor this year, piling up heavy losses. This is especially true as Treasury yields across the curve are at or near multi-year highs thanks to accelerating inflation and the Fed’s tightening policy. The five-year yields climbed to 2% for the first time since May 2019, and 10-year yields jumped above 2.1% to the highest close since June 2019 (read: 5 Defensive ETF Bets to Tackle the Current Market Carnage).
Amid such a scenario, investors should put their money in ETFs that bet against U.S. Treasury bonds. For them, we have highlighted some inverse or leveraged inverse ETFs that could be worth buying for huge gains in a short span. These include ProShares Short 20+ Year Treasury ETF (TBF - Free Report) , ProShares UltraShort 20+ Year Treasury ETF (TBT - Free Report) , Direxion Daily 20+ Year Treasury Bear 3x Shares (TMV - Free Report) , ProShares UltraPro Short 20+ Year Treasury ETF (TTT - Free Report) and Direxion Daily 7-10 Year Treasury Bear 3X Shares (TYO - Free Report) .
Inverse ETFs provide opposite exposure that is a multiple (-1X, -2X or -3X) of the performance of the underlying index using various investment strategies, such as swaps, futures contracts and other derivative instruments. All these have witnessed solid gains to start the year.
Yields Surging
The ongoing war between Russia and Ukraine as well as a fresh round of restrictions to curb the spread of COVID-19 in China could exacerbate global supply bottlenecks leading to further inflation spike. The 30-year breakeven rate — a bond-market gauge of inflation expectations — hit 2.60% last week, the highest since 2013.
Additionally, Fed Chair Jerome Powell is expected to raise the key interest rate from near zero for the first time since 2018 at the Mar 15-16 monetary policy committee meeting to fight a historic surge in inflation. Powell proposed a quarter-point hike instead of a half-point, indicating uncertainty related to the ongoing war. But he could move “more aggressively” if four-decade inflation does not abate substantially. According to CME Group’s FedWatch, investors expect seven times rate hikes this year in each of the seven-meeting scheduled (read: Fed Rate Hike to Bring These ETF Areas to the Forefront).
ETFs to Play
ProShares Short 20+ Year Treasury ETF (TBF - Free Report)
ProShares Short 20+ Year Treasury ETF provides inverse exposure to the ICE U.S. Treasury 20+ Year Bond Index.
ProShares Short 20+ Year Treasury ETF has accumulated $765.6 million in its asset base and charges 92 basis points (bps) in annual fees. Volume is solid at 3 million shares a day on average. The ETF has gained 8.6% so far this year.
ProShares UltraShort 20+ Year Treasury ETF (TBT - Free Report)
ProShares UltraShort 20+ Year Treasury ETF seeks two times the inverse daily performance of the ICE U.S. Treasury 20+ Year Bond Index. It is the most popular and liquid ETF in the inverse Treasury space, with AUM of $1.3 billion and an average daily volume of 9.7 million shares.
ProShares UltraShort 20+ Year Treasury ETF charges 90 bps in annual fees and is up 17.3% so far this year.
With AUM of $372.6 million, Direxion Daily 20+ Year Treasury Bear 3x Shares charges 89 bps in fees and trades in a solid volume of 590,000 shares a day on average. It has surged 26% this year.
ProShares UltraPro Short 20+ Year Treasury ETF (TTT - Free Report)
ProShares UltraPro Short 20+ Year Treasury ETF also offers three times the inverse performance of the same index. It has AUM of $259.3 million and an average daily volume of roughly 147,000 shares. Expense ratio comes in at 0.95%.
ProShares UltraPro Short 20+ Year Treasury ETF has gained 25.6% so far this year.
Direxion Daily 7-10 Year Treasury Bear 3X Shares provides three times the inverse performance of the ICE U.S. Treasury 7-10 Year Bond Index.
Direxion Daily 7-10 Year Treasury Bear 3X Shares charges 95 bps in annual fees and trades in an average daily volume of roughly 135,000 shares. It has accumulated $35.1 million in its asset base and has risen 10.6% this year.
Bottom Line
As a caveat, investors should note that such products are extremely volatile and suitable only for short-term traders. Additionally, the daily rebalancing — when combined with leverage — may force these products to deviate significantly from the expected long-term performance figures (see: all the Inverse Bond ETFs here).
Still, for ETF investors who believe that yields will continue to rise at least in the near term, any of the above products could make an interesting choice. Clearly, a near-term short could be intriguing for those with high-risk tolerance and a belief that trend is the friend in this corner of the investing world.
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Yields Hit Multi-Year Highs: Short Treasury With These ETFs
The U.S. Treasury market has been out of investors’ favor this year, piling up heavy losses. This is especially true as Treasury yields across the curve are at or near multi-year highs thanks to accelerating inflation and the Fed’s tightening policy. The five-year yields climbed to 2% for the first time since May 2019, and 10-year yields jumped above 2.1% to the highest close since June 2019 (read: 5 Defensive ETF Bets to Tackle the Current Market Carnage).
Amid such a scenario, investors should put their money in ETFs that bet against U.S. Treasury bonds. For them, we have highlighted some inverse or leveraged inverse ETFs that could be worth buying for huge gains in a short span. These include ProShares Short 20+ Year Treasury ETF (TBF - Free Report) , ProShares UltraShort 20+ Year Treasury ETF (TBT - Free Report) , Direxion Daily 20+ Year Treasury Bear 3x Shares (TMV - Free Report) , ProShares UltraPro Short 20+ Year Treasury ETF (TTT - Free Report) and Direxion Daily 7-10 Year Treasury Bear 3X Shares (TYO - Free Report) .
Inverse ETFs provide opposite exposure that is a multiple (-1X, -2X or -3X) of the performance of the underlying index using various investment strategies, such as swaps, futures contracts and other derivative instruments. All these have witnessed solid gains to start the year.
Yields Surging
The ongoing war between Russia and Ukraine as well as a fresh round of restrictions to curb the spread of COVID-19 in China could exacerbate global supply bottlenecks leading to further inflation spike. The 30-year breakeven rate — a bond-market gauge of inflation expectations — hit 2.60% last week, the highest since 2013.
Additionally, Fed Chair Jerome Powell is expected to raise the key interest rate from near zero for the first time since 2018 at the Mar 15-16 monetary policy committee meeting to fight a historic surge in inflation. Powell proposed a quarter-point hike instead of a half-point, indicating uncertainty related to the ongoing war. But he could move “more aggressively” if four-decade inflation does not abate substantially. According to CME Group’s FedWatch, investors expect seven times rate hikes this year in each of the seven-meeting scheduled (read: Fed Rate Hike to Bring These ETF Areas to the Forefront).
ETFs to Play
ProShares Short 20+ Year Treasury ETF (TBF - Free Report)
ProShares Short 20+ Year Treasury ETF provides inverse exposure to the ICE U.S. Treasury 20+ Year Bond Index.
ProShares Short 20+ Year Treasury ETF has accumulated $765.6 million in its asset base and charges 92 basis points (bps) in annual fees. Volume is solid at 3 million shares a day on average. The ETF has gained 8.6% so far this year.
ProShares UltraShort 20+ Year Treasury ETF (TBT - Free Report)
ProShares UltraShort 20+ Year Treasury ETF seeks two times the inverse daily performance of the ICE U.S. Treasury 20+ Year Bond Index. It is the most popular and liquid ETF in the inverse Treasury space, with AUM of $1.3 billion and an average daily volume of 9.7 million shares.
ProShares UltraShort 20+ Year Treasury ETF charges 90 bps in annual fees and is up 17.3% so far this year.
Direxion Daily 20+ Year Treasury Bear 3x Shares (TMV - Free Report)
Direxion Daily 20+ Year Treasury Bear 3x Shares offers three times the inverse exposure to the same ICE U.S. Treasury 20+ Year Bond Index (read: ETFs to Play as U.S. Benchmark Treasury Yield Tops 2%).
With AUM of $372.6 million, Direxion Daily 20+ Year Treasury Bear 3x Shares charges 89 bps in fees and trades in a solid volume of 590,000 shares a day on average. It has surged 26% this year.
ProShares UltraPro Short 20+ Year Treasury ETF (TTT - Free Report)
ProShares UltraPro Short 20+ Year Treasury ETF also offers three times the inverse performance of the same index. It has AUM of $259.3 million and an average daily volume of roughly 147,000 shares. Expense ratio comes in at 0.95%.
ProShares UltraPro Short 20+ Year Treasury ETF has gained 25.6% so far this year.
Direxion Daily 7-10 Year Treasury Bear 3X Shares (TYO - Free Report)
Direxion Daily 7-10 Year Treasury Bear 3X Shares provides three times the inverse performance of the ICE U.S. Treasury 7-10 Year Bond Index.
Direxion Daily 7-10 Year Treasury Bear 3X Shares charges 95 bps in annual fees and trades in an average daily volume of roughly 135,000 shares. It has accumulated $35.1 million in its asset base and has risen 10.6% this year.
Bottom Line
As a caveat, investors should note that such products are extremely volatile and suitable only for short-term traders. Additionally, the daily rebalancing — when combined with leverage — may force these products to deviate significantly from the expected long-term performance figures (see: all the Inverse Bond ETFs here).
Still, for ETF investors who believe that yields will continue to rise at least in the near term, any of the above products could make an interesting choice. Clearly, a near-term short could be intriguing for those with high-risk tolerance and a belief that trend is the friend in this corner of the investing world.