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The U.S. Treasury yields have been on a surge lately, driven by the expectations of the Federal Reserve maintaining elevated interest rates. Both 10-year and 30-year Treasury yields touched significant multi-year highs. The trend of issuing new bonds is expected to continue due to the federal government's increasing deficits.
The 10-year yields rose to 4.53%, a level not seen since October 2007, while the 30-year yield reached 4.64%, its highest level since April 2011. This has led to a surge in ETFs that bet against U.S. Treasury bonds.
Direxion Daily 20+ Year Treasury Bear 3x Shares (TMV - Free Report) and ProShares UltraPro Short 20+ Year Treasury ETF (TTT - Free Report) are the biggest beneficiaries of the trend, rising 7.5% each. This was followed by gains of 5% for ProShares UltraShort 20+ Year Treasury ETF (TBT - Free Report) , 2.5% for ProShares Short 20+ Year Treasury (TBF - Free Report) and 2% for 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. These ETFs could be worth buying for huge gains in a short span arising from rising yields.
Last week, the Fed hinted at a possible rate hike later this year and curtailed expectations for rate cuts in 2024. These suggest a prolonged phase of tight monetary policy geared toward tackling inflation (read: Bet on Quality ETFs as Fed Keeps Rate Steady, View Hawkish).
Though inflation is easing, it remains elevated and is above the Fed’s 2% target. The ongoing strength in the economy and the surging oil prices threaten to revive inflationary pressure. Twelve members of the FOMC saw one more rate hike this year, while seven members wanted to keep rates at current levels through year-end.
Moreover, the ultra-popular iShares 20+ Year Treasury Bond ETF (TLT - Free Report) , with an asset base of $39 billion and an average daily volume of around 25.5 million shares, is undergoing its most significant drawdown to date due to the Fed's sustained high interest rates. The ETF declined 48% from its peak in 2020 and is currently trading at levels not seen since 2011, based on Bloomberg's data compilation. Concurrently, data from IHS Markit Ltd. indicates a rising trend of bets against the fund, with short interest relative to its outstanding shares at a peak for the past month.
Direxion Daily 20+ Year Treasury Bear 3x Shares offers three times the inverse exposure to the ICE U.S. Treasury 20+ Year Bond Index. With AUM of $362.8 million, Direxion Daily 20+ Year Treasury Bear 3x Shares charges 88 bps in fees and trades in a solid volume of 1.5 million shares a day on average.
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 $74.5 million and an average daily volume of roughly 110,000 shares. The expense ratio comes in at 0.95%.
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 $548.9 million and an average daily volume of 2.3 million shares. ProShares UltraShort 20+ Year Treasury ETF charges 89 bps in annual fees (read: Bond Yields Likely to Remain High in 2024: ETF Strategies in Focus).
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 $193.9 million in its asset base and charges 90 bps in annual fees. Volume is solid at 504,000 shares a day on average.
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. It charges 95 bps in annual fees and trades in an average daily volume of roughly 38,000 shares. Direxion Daily 7-10 Year Treasury Bear 3X Shares has accumulated $27 million in its asset base.
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 Surge as Yields Rise
The U.S. Treasury yields have been on a surge lately, driven by the expectations of the Federal Reserve maintaining elevated interest rates. Both 10-year and 30-year Treasury yields touched significant multi-year highs. The trend of issuing new bonds is expected to continue due to the federal government's increasing deficits.
The 10-year yields rose to 4.53%, a level not seen since October 2007, while the 30-year yield reached 4.64%, its highest level since April 2011. This has led to a surge in ETFs that bet against U.S. Treasury bonds.
Direxion Daily 20+ Year Treasury Bear 3x Shares (TMV - Free Report) and ProShares UltraPro Short 20+ Year Treasury ETF (TTT - Free Report) are the biggest beneficiaries of the trend, rising 7.5% each. This was followed by gains of 5% for ProShares UltraShort 20+ Year Treasury ETF (TBT - Free Report) , 2.5% for ProShares Short 20+ Year Treasury (TBF - Free Report) and 2% for 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. These ETFs could be worth buying for huge gains in a short span arising from rising yields.
Last week, the Fed hinted at a possible rate hike later this year and curtailed expectations for rate cuts in 2024. These suggest a prolonged phase of tight monetary policy geared toward tackling inflation (read: Bet on Quality ETFs as Fed Keeps Rate Steady, View Hawkish).
Though inflation is easing, it remains elevated and is above the Fed’s 2% target. The ongoing strength in the economy and the surging oil prices threaten to revive inflationary pressure. Twelve members of the FOMC saw one more rate hike this year, while seven members wanted to keep rates at current levels through year-end.
Moreover, the ultra-popular iShares 20+ Year Treasury Bond ETF (TLT - Free Report) , with an asset base of $39 billion and an average daily volume of around 25.5 million shares, is undergoing its most significant drawdown to date due to the Fed's sustained high interest rates. The ETF declined 48% from its peak in 2020 and is currently trading at levels not seen since 2011, based on Bloomberg's data compilation. Concurrently, data from IHS Markit Ltd. indicates a rising trend of bets against the fund, with short interest relative to its outstanding shares at a peak for the past month.
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 ICE U.S. Treasury 20+ Year Bond Index. With AUM of $362.8 million, Direxion Daily 20+ Year Treasury Bear 3x Shares charges 88 bps in fees and trades in a solid volume of 1.5 million shares a day on average.
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 $74.5 million and an average daily volume of roughly 110,000 shares. The expense ratio comes in at 0.95%.
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 $548.9 million and an average daily volume of 2.3 million shares. ProShares UltraShort 20+ Year Treasury ETF charges 89 bps in annual fees (read: Bond Yields Likely to Remain High in 2024: ETF Strategies in Focus).
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 $193.9 million in its asset base and charges 90 bps in annual fees. Volume is solid at 504,000 shares a day on average.
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. It charges 95 bps in annual fees and trades in an average daily volume of roughly 38,000 shares. Direxion Daily 7-10 Year Treasury Bear 3X Shares has accumulated $27 million in its asset base.
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.