We use cookies to understand how you use our site and to improve your experience.
This includes personalizing content and advertising.
By pressing "Accept All" or closing out of this banner, you consent to the use of all cookies and similar technologies and the sharing of information they collect with third parties.
You can reject marketing cookies by pressing "Deny Optional," but we still use essential, performance, and functional cookies.
In addition, whether you "Accept All," Deny Optional," click the X or otherwise continue to use the site, you accept our Privacy Policy and Terms of Service, revised from time to time.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
U.S. Treasury yields are spiking lately, reigniting investor concerns about fiscal sustainability and market volatility. The yield on the 30-year Treasury jumped to 5.09%, breaching the critical 5% mark for the second time this week — a level last seen in October 2023. Meanwhile, the 10-year Treasury yield rose to the highest level since February at 4.6%. Long-term rates are rising faster than short-term rates due to concerns over rising U.S. debt and long-term borrowing costs (read: ETFs to Make the Most of the Long-Term Yield Surge to 5%).
This is expected to take a toll on rate-sensitive, high-yield sectors such as utilities and real estate. When yields rise, these sectors, known for the income they generate, fall out of favor as investors gain similar levels of income from bonds without any stock risk.
As such, investors could make a short-term bearish play on rate-sensitive sectors, as these are expected to trade sluggishly if yields continue to rise. While futures or short-stock approaches are some possibilities, inverse ETFs like ProShares Short Real Estate ETF (REK - Free Report) , ProShares UltraShort Real Estate ETF (SRS - Free Report) , Direxion Daily Real Estate Bear 3X Shares (DRV - Free Report) and ProShares UltraShort Utilities ETF (SDP - Free Report) might be good options.
Real estate companies borrow heavily to finance property purchases. Rising yields increase borrowing costs, thus reducing profitability. Like REITs, utility companies typically carry large amounts of debt for infrastructure. Higher rates mean higher interest expenses. Additionally, homebuilders get hurt as higher yields translate into higher mortgage rates, which, in turn, will discourage people from buying homes and make refinancing expensive.
Factors Driving Yields Higher
Tax Bill: The primary catalyst driving yields is the unveiling of a Republican-backed tax bill that could significantly expand the federal deficit. If passed, the legislation would reduce individual and corporate tax rates, but would raise the nation's debt ceiling by $3 trillion over the next decade.
Moody’s Downgrade: Moody's downgraded the U.S. credit rating, citing escalating federal deficits and interest costs. This downgrade has raised investor concerns about the sustainability of U.S. fiscal policy, leading to higher yields as investors demand greater compensation for perceived increased risk (read: Moody's Downgrades U.S. Rating: What's Next for S&P 500 ETFs?).
Auction: Adding to the yield gain was a “lackluster” auction of 20-year bonds on Wednesday, which signaled weakening demand for long-duration Treasuries — a troubling sign given the ballooning supply expected if the new tax package is passed.
Inverse ETFs in Focus
Inverse ETFs provide opposite exposure that is a multiple (-1, -2 or -3 times) of the performance of the underlying sector using various investment strategies, such as swaps, futures contracts and other derivative instruments.
Since most of these funds seek to attain their goal on a daily basis, their performance could vary significantly from the inverse performance of the underlying index or benchmark over a longer period than a shorter one (weeks, months or years) due to the compounding effect. However, these funds are cheaper than direct shorting or the utilization of futures contracts.
ProShares Short Real Estate ETF seeks to deliver the inverse return of the daily performance of the S&P Real Estate Select Sector Index. The ETF makes profits when real estate stocks decline and is suitable for hedging purposes against the fall of these stocks. ProShares Short Real Estate ETF has amassed $11.3 million in its asset base while volume is moderate at around 11,000 shares a day. It charges 95 bps in annual fees.
ProShares UltraShort Real Estate ETF (SRS - Free Report)
ProShares UltraShort Real Estate ETF offers two times inverse exposure to the performance of the S&P Real Estate Select Sector Index. It has managed assets worth $22.1 million and charges 95 bps in fees per year. ProShares UltraShort Real Estate ETF trades in an average daily volume of 44,000 shares and charges 95 bps in annual fees.
Direxion Daily Real Estate Bear 3X Shares seeks to deliver three times the inverse performance of the Real Estate Select Sector Index, charging 95 bps in annual fees. It has AUM of $44.2 million and an average daily volume of around 183,000 shares.
ProShares UltraShort Utilities ETF seeks to deliver twice the inverse return of the daily performance of the S&P Utilities Select Sector Index. It has $2.6 million in AUM and an average trading volume of nearly 35,000 shares per day. SDP charges 95 bps in annual fees.
Bottom Line
Investors should note that these products are suitable only for short-term traders as these are rebalanced on a daily basis (read: all Inverse Equity ETFs here).
Still, for ETF investors who are bearish on the securities of the high-yielding sectors 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 a high-risk tolerance and a belief that the “trend is the friend” in this corner of the investing world.
See More Zacks Research for These Tickers
Normally $25 each - click below to receive one report FREE:
Image: Bigstock
Inverse Sector ETFs to Gain as Yields Surge
U.S. Treasury yields are spiking lately, reigniting investor concerns about fiscal sustainability and market volatility. The yield on the 30-year Treasury jumped to 5.09%, breaching the critical 5% mark for the second time this week — a level last seen in October 2023. Meanwhile, the 10-year Treasury yield rose to the highest level since February at 4.6%. Long-term rates are rising faster than short-term rates due to concerns over rising U.S. debt and long-term borrowing costs (read: ETFs to Make the Most of the Long-Term Yield Surge to 5%).
This is expected to take a toll on rate-sensitive, high-yield sectors such as utilities and real estate. When yields rise, these sectors, known for the income they generate, fall out of favor as investors gain similar levels of income from bonds without any stock risk.
As such, investors could make a short-term bearish play on rate-sensitive sectors, as these are expected to trade sluggishly if yields continue to rise. While futures or short-stock approaches are some possibilities, inverse ETFs like ProShares Short Real Estate ETF (REK - Free Report) , ProShares UltraShort Real Estate ETF (SRS - Free Report) , Direxion Daily Real Estate Bear 3X Shares (DRV - Free Report) and ProShares UltraShort Utilities ETF (SDP - Free Report) might be good options.
Real estate companies borrow heavily to finance property purchases. Rising yields increase borrowing costs, thus reducing profitability. Like REITs, utility companies typically carry large amounts of debt for infrastructure. Higher rates mean higher interest expenses. Additionally, homebuilders get hurt as higher yields translate into higher mortgage rates, which, in turn, will discourage people from buying homes and make refinancing expensive.
Factors Driving Yields Higher
Tax Bill: The primary catalyst driving yields is the unveiling of a Republican-backed tax bill that could significantly expand the federal deficit. If passed, the legislation would reduce individual and corporate tax rates, but would raise the nation's debt ceiling by $3 trillion over the next decade.
Moody’s Downgrade: Moody's downgraded the U.S. credit rating, citing escalating federal deficits and interest costs. This downgrade has raised investor concerns about the sustainability of U.S. fiscal policy, leading to higher yields as investors demand greater compensation for perceived increased risk (read: Moody's Downgrades U.S. Rating: What's Next for S&P 500 ETFs?).
Auction: Adding to the yield gain was a “lackluster” auction of 20-year bonds on Wednesday, which signaled weakening demand for long-duration Treasuries — a troubling sign given the ballooning supply expected if the new tax package is passed.
Inverse ETFs in Focus
Inverse ETFs provide opposite exposure that is a multiple (-1, -2 or -3 times) of the performance of the underlying sector using various investment strategies, such as swaps, futures contracts and other derivative instruments.
Since most of these funds seek to attain their goal on a daily basis, their performance could vary significantly from the inverse performance of the underlying index or benchmark over a longer period than a shorter one (weeks, months or years) due to the compounding effect. However, these funds are cheaper than direct shorting or the utilization of futures contracts.
ProShares Short Real Estate ETF (REK - Free Report)
ProShares Short Real Estate ETF seeks to deliver the inverse return of the daily performance of the S&P Real Estate Select Sector Index. The ETF makes profits when real estate stocks decline and is suitable for hedging purposes against the fall of these stocks. ProShares Short Real Estate ETF has amassed $11.3 million in its asset base while volume is moderate at around 11,000 shares a day. It charges 95 bps in annual fees.
ProShares UltraShort Real Estate ETF (SRS - Free Report)
ProShares UltraShort Real Estate ETF offers two times inverse exposure to the performance of the S&P Real Estate Select Sector Index. It has managed assets worth $22.1 million and charges 95 bps in fees per year. ProShares UltraShort Real Estate ETF trades in an average daily volume of 44,000 shares and charges 95 bps in annual fees.
Direxion Daily Real Estate Bear 3X Shares (DRV - Free Report)
Direxion Daily Real Estate Bear 3X Shares seeks to deliver three times the inverse performance of the Real Estate Select Sector Index, charging 95 bps in annual fees. It has AUM of $44.2 million and an average daily volume of around 183,000 shares.
ProShares UltraShort Utilities ETF (SDP - Free Report)
ProShares UltraShort Utilities ETF seeks to deliver twice the inverse return of the daily performance of the S&P Utilities Select Sector Index. It has $2.6 million in AUM and an average trading volume of nearly 35,000 shares per day. SDP charges 95 bps in annual fees.
Bottom Line
Investors should note that these products are suitable only for short-term traders as these are rebalanced on a daily basis (read: all Inverse Equity ETFs here).
Still, for ETF investors who are bearish on the securities of the high-yielding sectors 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 a high-risk tolerance and a belief that the “trend is the friend” in this corner of the investing world.