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Inverse Treasury ETFs Spike as Yields Hit 2023 Highs
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Treasury yields spiked to the highs of 2023 in the Aug 2 trading session, buoyed by plans of a flood of government-debt issuance and signs of the labor market’s enduring strength. The 10-year yields topped 4.12%, marking the highest level since November 2022, while 30-year yields reached their highest level in nearly nine months to about 4.2% (read: Rates to Remain Higher for Longer? High-Yield ETFs in Focus).
This led to a spike in ETFs that bet against U.S. Treasury bonds. While most of the inverse ETFs have been riding higher, ProShares UltraPro Short 20+ Year Treasury ETF (TTT - Free Report) and Direxion Daily 20+ Year Treasury Bear 3x Shares (TMV - Free Report) are the show stealers, rising more than 3%. This is followed by gains of 2.1% for ProShares UltraShort 20+ Year Treasury ETF (TBT - Free Report) , 1.1% forProShares Short 20+ Year Treasury (TBF - Free Report) and 0.5% for ProShares UltraShort 7-10 Year Treasury (PST - 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. These ETFs could be worth buying for huge gains in a short span arising from rising yields.
The Treasury Department announced its plans to increase the sale of longer-term debt to $103 billion for the upcoming week, up from the previous $96 billion. The issuance includes offerings of $42 billion in three-year notes, $38 billion in 10-year notes, and $23 billion in 30-year bonds, according to the Financial Times. The decision to ramp up debt sales came amid a surge in budget deficits.
Additionally, concerns over the expected fiscal deterioration over the next three years, the growing general government debt burden, and governance erosion have led Fitch Ratings to downgrade the U.S. credit rating from AAA to AA+.
The surge in yields was also driven by upbeat ADP jobs data, which shows that private payrolls increased by 324,000 last month. This indicates the persistent strength in the labor market despite an extended Federal Reserve campaign to slow the economy and bring down inflation (read: 5 ETFs to Ride On Solid Q2 Economic Growth).
With the surge in yields, Treasuries are on the verge of erasing all the gains made this year, with the Bloomberg US Treasury Total Return Index up just 0.7% in 2023.
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 ICE U.S. Treasury 20+ Year Bond Index. It has AUM of $218.8 million and an average daily volume of roughly 35,000 shares. The expense ratio comes in at 0.95%.
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. With AUM of $298.3 million, Direxion Daily 20+ Year Treasury Bear 3x Shares charges 88 bps in fees and trades in a solid volume of 243,000 shares a day on average.
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 $470.1 million and an average daily volume of 2.7 million shares. ProShares UltraShort 20+ Year Treasury ETF charges 89 bps in annual fees.
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. It has accumulated $167.2 million in its asset base and charges 90 bps in annual fees. Volume is solid at 368,000 shares a day on average.
ProShares UltraShort 7-10 Year Treasury (PST - Free Report)
ProShares UltraShort 7-10 Year Treasury seeks to offer two times the inverse the daily performance of the ICE U.S. Treasury 7-10 Year Bond Index, charging 95 bps in annual fees. With AUM of $26 million, the fund trades in a volume of 54,000 shares a day on average.
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, 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 the trend is the friend in this corner of the investing world.
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Inverse Treasury ETFs Spike as Yields Hit 2023 Highs
Treasury yields spiked to the highs of 2023 in the Aug 2 trading session, buoyed by plans of a flood of government-debt issuance and signs of the labor market’s enduring strength. The 10-year yields topped 4.12%, marking the highest level since November 2022, while 30-year yields reached their highest level in nearly nine months to about 4.2% (read: Rates to Remain Higher for Longer? High-Yield ETFs in Focus).
This led to a spike in ETFs that bet against U.S. Treasury bonds. While most of the inverse ETFs have been riding higher, ProShares UltraPro Short 20+ Year Treasury ETF (TTT - Free Report) and Direxion Daily 20+ Year Treasury Bear 3x Shares (TMV - Free Report) are the show stealers, rising more than 3%. This is followed by gains of 2.1% for ProShares UltraShort 20+ Year Treasury ETF (TBT - Free Report) , 1.1% for ProShares Short 20+ Year Treasury (TBF - Free Report) and 0.5% for ProShares UltraShort 7-10 Year Treasury (PST - 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. These ETFs could be worth buying for huge gains in a short span arising from rising yields.
The Treasury Department announced its plans to increase the sale of longer-term debt to $103 billion for the upcoming week, up from the previous $96 billion. The issuance includes offerings of $42 billion in three-year notes, $38 billion in 10-year notes, and $23 billion in 30-year bonds, according to the Financial Times. The decision to ramp up debt sales came amid a surge in budget deficits.
Additionally, concerns over the expected fiscal deterioration over the next three years, the growing general government debt burden, and governance erosion have led Fitch Ratings to downgrade the U.S. credit rating from AAA to AA+.
The surge in yields was also driven by upbeat ADP jobs data, which shows that private payrolls increased by 324,000 last month. This indicates the persistent strength in the labor market despite an extended Federal Reserve campaign to slow the economy and bring down inflation (read: 5 ETFs to Ride On Solid Q2 Economic Growth).
With the surge in yields, Treasuries are on the verge of erasing all the gains made this year, with the Bloomberg US Treasury Total Return Index up just 0.7% in 2023.
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 ICE U.S. Treasury 20+ Year Bond Index. It has AUM of $218.8 million and an average daily volume of roughly 35,000 shares. The expense ratio comes in at 0.95%.
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. With AUM of $298.3 million, Direxion Daily 20+ Year Treasury Bear 3x Shares charges 88 bps in fees and trades in a solid volume of 243,000 shares a day on average.
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 $470.1 million and an average daily volume of 2.7 million shares. ProShares UltraShort 20+ Year Treasury ETF charges 89 bps in annual fees.
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. It has accumulated $167.2 million in its asset base and charges 90 bps in annual fees. Volume is solid at 368,000 shares a day on average.
ProShares UltraShort 7-10 Year Treasury (PST - Free Report)
ProShares UltraShort 7-10 Year Treasury seeks to offer two times the inverse the daily performance of the ICE U.S. Treasury 7-10 Year Bond Index, charging 95 bps in annual fees. With AUM of $26 million, the fund trades in a volume of 54,000 shares a day on average.
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, 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 the trend is the friend in this corner of the investing world.