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U.S. Treasury yields have been on an uptrend on a host of factors. While the 10-year benchmark U.S. Treasury yield crossed the 3% mark for the first time since January 2014, two-year U.S. yields are at 2008 highs.
Chances of a massive supply of government debt in the near term and the likelihood of the fourth rate hike led to these gyrations in the fixed-income world. The Fed enacted a 25-bp hike in March, and two more are likely in June and September. But the fed funds futures market lately signaled a 50% chance of one more move in December (read: Win From Rising Rates With These 4 ETF Strategies).
Moreover, higher inflationary expectations emanating from a rise in commodity prices, mainly crude, this year pose another threat to the bond market. Meanwhile, some U.S. economic data like home sales and consumer confidence came in upbeat. This should make Fed members comfortable with their pace of rate hikes in the coming days.
Bond market expert Jeffrey Gundlach at DoubleLine Capital and Scott Minerd at Guggenheim Partners noted that the 3% 10-year yield is a crucial threshold for the bond market. The benchmark yield only topped this level briefly in 2013 and January 2014.
As a result, investors are pulling their money out of the bond market, especially the longer ones, as these are more vulnerable to an increase in interest rates. But there is a way to cash in on this rising yield trend, in the form of inverse Treasury ETFs (read: ETFs to Benefit or Lose from Rising Yields).
For those investors, we have highlighted four inverse bond ETFs that could be worth buying for big gains in a short span. In fact, these products have provided outsized gains over the past few sessions.
How Do Inverse ETFs Work?
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.
Since most of these funds seek to attain their goals on a daily basis, their performance could vary significantly from the inverse performance of the underlying index or benchmark, over a longer period when compared to a shorter period (such as, weeks, months or years) due to the compounding effect.
ETFs to Consider
ProShares Short 20+ Year Treasury ETF(TBF - Free Report)
This is the largest and most popular ETF in the inverse bond space with AUM of $655.4 million. It seeks to provide 1x inverse (or opposite) exposure to the daily performance of the ICE U.S. Treasury 20+ Year Bond Index. The fund charges 94 bps in fees.
Direxion Daily 20+ Year Treasury Bear 1X Shares
This ETF also offers the inverse returns of the ICE U.S. Treasury 20+ Year Bond Index. It has amassed $5.3 million in its asset base. The fund charges 48 bps in annual fees.
iPath US Treasury 10-Year Bear ETN
This ETN seeks to deliver an inverse return of the Barclays 10Y US Treasury Futures Targeted Exposure Index, which tracks inverse moves in yields from buying 10-year Treasury bonds. It is unpopular with AUM of $66.4 million. DTYS charges 75 bps in fees per year.
iPath US Treasury Long Bond Bear ETN
This note tracks the inverse returns of the Barclays Long Bond US Treasury Futures Targeted Exposure Index, which targets the inverse moves in yields from buying long-dated Treasury bonds. It has accumulated just $20.7 million in its asset base and charges 75 bps in annual fees.
Barclays Inverse US Treasury Composite ETN
The ETN is linked to the performance of the Barclays Inverse US Treasury Futures Composite Index, which deploysa strategy that tracks the sum of the returns of periodically rebalanced short positions in equal face values of each of the two-year, five-year, 10-year, long-bond and ultra-long U.S. Treasury futures contracts. The fund charges 43 bps in fees.
iPath US Treasury Flattener ETN
The note is designed to provide investors with inverse exposure to the Barclays US Treasury 2Y/10Y Yield Curve Index.
ProShares UltraPro Short 20+ Year Treasury ETF (TTT - Free Report)
Investors having a more bearish view and higher risk appetite should keep a watch on TTT. This fund also tracks the same index but offers three times (3x) inverse exposure. It is often overlooked by investors as depicted by AUM of $100.0 million. Expense ratio comes in at 0.95% (read: 3 Bear ETF Areas at One-Month High).
Image: Bigstock
8 Inverse Bond ETFs to Profit from Rising Rates
U.S. Treasury yields have been on an uptrend on a host of factors. While the 10-year benchmark U.S. Treasury yield crossed the 3% mark for the first time since January 2014, two-year U.S. yields are at 2008 highs.
Chances of a massive supply of government debt in the near term and the likelihood of the fourth rate hike led to these gyrations in the fixed-income world. The Fed enacted a 25-bp hike in March, and two more are likely in June and September. But the fed funds futures market lately signaled a 50% chance of one more move in December (read: Win From Rising Rates With These 4 ETF Strategies).
Moreover, higher inflationary expectations emanating from a rise in commodity prices, mainly crude, this year pose another threat to the bond market. Meanwhile, some U.S. economic data like home sales and consumer confidence came in upbeat. This should make Fed members comfortable with their pace of rate hikes in the coming days.
Bond market expert Jeffrey Gundlach at DoubleLine Capital and Scott Minerd at Guggenheim Partners noted that the 3% 10-year yield is a crucial threshold for the bond market. The benchmark yield only topped this level briefly in 2013 and January 2014.
As a result, investors are pulling their money out of the bond market, especially the longer ones, as these are more vulnerable to an increase in interest rates. But there is a way to cash in on this rising yield trend, in the form of inverse Treasury ETFs (read: ETFs to Benefit or Lose from Rising Yields).
For those investors, we have highlighted four inverse bond ETFs that could be worth buying for big gains in a short span. In fact, these products have provided outsized gains over the past few sessions.
How Do Inverse ETFs Work?
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.
Since most of these funds seek to attain their goals on a daily basis, their performance could vary significantly from the inverse performance of the underlying index or benchmark, over a longer period when compared to a shorter period (such as, weeks, months or years) due to the compounding effect.
ETFs to Consider
ProShares Short 20+ Year Treasury ETF(TBF - Free Report)
This is the largest and most popular ETF in the inverse bond space with AUM of $655.4 million. It seeks to provide 1x inverse (or opposite) exposure to the daily performance of the ICE U.S. Treasury 20+ Year Bond Index. The fund charges 94 bps in fees.
Direxion Daily 20+ Year Treasury Bear 1X Shares
This ETF also offers the inverse returns of the ICE U.S. Treasury 20+ Year Bond Index. It has amassed $5.3 million in its asset base. The fund charges 48 bps in annual fees.
iPath US Treasury 10-Year Bear ETN
This ETN seeks to deliver an inverse return of the Barclays 10Y US Treasury Futures Targeted Exposure Index, which tracks inverse moves in yields from buying 10-year Treasury bonds. It is unpopular with AUM of $66.4 million. DTYS charges 75 bps in fees per year.
iPath US Treasury Long Bond Bear ETN
This note tracks the inverse returns of the Barclays Long Bond US Treasury Futures Targeted Exposure Index, which targets the inverse moves in yields from buying long-dated Treasury bonds. It has accumulated just $20.7 million in its asset base and charges 75 bps in annual fees.
Barclays Inverse US Treasury Composite ETN
The ETN is linked to the performance of the Barclays Inverse US Treasury Futures Composite Index, which deploysa strategy that tracks the sum of the returns of periodically rebalanced short positions in equal face values of each of the two-year, five-year, 10-year, long-bond and ultra-long U.S. Treasury futures contracts. The fund charges 43 bps in fees.
iPath US Treasury Flattener ETN
The note is designed to provide investors with inverse exposure to the Barclays US Treasury 2Y/10Y Yield Curve Index.
ProShares UltraPro Short 20+ Year Treasury ETF (TTT - Free Report)
Investors having a more bearish view and higher risk appetite should keep a watch on TTT. This fund also tracks the same index but offers three times (3x) inverse exposure. It is often overlooked by investors as depicted by AUM of $100.0 million. Expense ratio comes in at 0.95% (read: 3 Bear ETF Areas at One-Month High).
Direxion Daily 20+ Year Treasury Bear 3x Shares (TMV - Free Report)
This ETF offers three times (3x) the inverse exposure to the ICE U.S. Treasury 20+ Year Bond Index. The AUM of the fund is $429.8 million.
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