Shorting Treasurys with ETFs

By Dennis Hudachek,

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Source: Bloomberg

TLT returned roughly 1.5 percent over a one-year period, but TBT was down almost 20 percent in the same period. So, with 14 inverse Treasury funds now trading, it’s crucial for investors to really understand how these products work.

Some fund issuers are attempting to mitigate the long-term effects of daily compounding by resetting the leverage monthly , instead of daily . The recently launched triple-leveraged PowerShares DB 3X Short 25+ Year Treasury Bond ETN (NYSE Arca:SBND) is one such example.

But SBND also happens to be based on a futures index, which introduces another variable that investors need to understand clearly before jumping into such securities.

Investors do have various factors to consider when shorting Treasurys through ETFs. But currently, no inverse funds currently provide perfect one-for-one inverse exposure for the long-haul because leveraged and inverse funds really aren’t designed for long-term investing.

That said, for those intent on holding inverse funds for an extended period to short Treasurys, all the volatility and uncertainty these days means that non-leveraged inverse funds like TBF might be a safer play than leveraged inverse funds such as TBT.


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Copyright ® 2011 IndexUniverse LLC . All Rights Reserved.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing ETFs
Referenced Stocks: IEF , SBND , TBF , TBT , TLT

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