5 Inverse Treasury ETFs Making the Most of Surging Yields

The U.S. fixed-income market has been piling up heavy losses this year on soaring yields. The 10- year Treasury yields topped 3% and  the 30-year Treasury bond jumped to 3.182%. This has led to a spike in ETFs that bet against U.S. Treasury bonds.

While most of the inverse ETFs have been riding higher, ProShares UltraPro Short 20+ Year Treasury ETF TTT and Direxion Daily 20+ Year Treasury Bear 3x Shares TMV are the show stealers with nearly 92% returns so far this year. This is followed by gains of 57.1% for ProShares UltraShort 20+ Year Treasury ETF TBT, 38.4% for Direxion Daily 7-10 Year Treasury Bear 3X Shares TYO and 26.3% for ProShares Short 20+ Year Treasury ETF TBF.

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 (read: 5 Leveraged, Inverse Leveraged ETFs Up in Double Digits in May).

The trend is likely to continue this year, given the Fed’s aggressive rate hike. The central bank took the most aggressive policy action in decades to combat soaring inflation by raising rates by 50 bps and pushing the benchmark above 0.75%. The hike marked the biggest interest-rate increase since 2000. The latest minutes showed that the central bank would continue raising interest rates by a half-percentage point each in June and July to combat surging inflation and to avoid an economic downturn.

Additionally, the Fed has started reducing its huge $9 trillion balance sheet, which consists mainly of Treasury and mortgage bonds, starting from an initial combined monthly pace of $47.5 billion ($30 billion in Treasuries and $17.5 billion in mortgage-backed securities). This is also providing a boost to yields, thereby leading to a decline in bonds.

ProShares UltraPro Short 20+ Year Treasury ETF (TTT)

ProShares UltraPro Short 20+ Year Treasury ETF also offers three times the inverse performance of the same index. It has AUM of $417.2 million and an average daily volume of roughly 254,000 shares. The expense ratio comes in at 0.95%.

Direxion Daily 20+ Year Treasury Bear 3x Shares (TMV)

Direxion Daily 20+ Year Treasury Bear 3x Shares offers three times the inverse exposure to the same ICE U.S. Treasury 20+ Year Bond Index. With AUM of $593.4 million, Direxion Daily 20+ Year Treasury Bear 3x Shares charges 88 bps in fees and trades in a solid volume of 753,000 shares a day on average (read: Benchmark Treasury Yields Jump: 5 ETFs to Play).

ProShares UltraShort 20+ Year Treasury ETF (TBT)

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 $1.4 billion and an average daily volume of 7.7 million shares. ProShares UltraShort 20+ Year Treasury ETF charges 90 bps in annual fees.

Direxion Daily 7-10 Year Treasury Bear 3X Shares (TYO)

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 213,000 shares. Direxion Daily 7-10 Year Treasury Bear 3X Shares has accumulated $61.3 million in its asset base.

ProShares Short 20+ Year Treasury ETF (TBF)

ProShares Short 20+ Year Treasury ETF provides inverse exposure to the ICE U.S. Treasury 20+ Year Bond Index. It has accumulated $648.6 million in its asset base and charges 92 bps in annual fees. Volume is solid at 2.1 million shares a day on average.

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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