ETFs that short Treasury bonds rise with yields
Soaring interest rates have investors buzzing around ETFs that bet against U.S. government debt.
A pair of ProShares ETFs that short Treasury bonds that mature in 20 years or more posted their best performance in almost two years Wednesday as yields on 10-year notes jumped to a seven-year peak and 30-year Treasurys rose to the highest level since 2014. TBF, which moves inversely to the ICE U.S. Treasury 20+ Year Bond Index, increased 1.8%, while TBT, which captures twice the inverse performance of that index, surged 3.6%.
Traders took notice. Roughly 1.8 million shares of TBF worth $42 million traded hands Wednesday, about four times the daily average over the past year. TBT, the ultra-short fund, was even more popular, as nearly 6.5 million shares worth $256 million changed hands, more than double the daily average over the past year.
“People are a little freaked out,” said Eric Balchunas, an ETF analyst at Bloomberg Intelligence. “If you see activity in these, it shows there’s a lot of people who are looking to bet on rates moving quickly.”
Investors flocked to the ultra-short bond ETF once again Thursday as few were willing to bet against persistent rising rates given the strong economic growth in the U.S. and a Federal Reserve set to continue tightening. About 4.3 million shares worth more than $175 million had changed hands, compared with about 2.5 million shares typically traded each day.
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Balchunas warned that investors should be careful with TBT, saying, “if rates shoot up, this thing will be in jackpot mode, but it can return and lose a lot quickly.”
Todd Rosenbluth, director of ETF research at CFRA, added that some investors could be using these risky products as a way to hedge.
“Investors have gravitated more to short and ultra-short term focused ETFs to protect against, rather than bet against, rising rates,” he said.