ETF Spotlight: ProShares UltraShort 20+ Year Treasury (TBT)

June 30th at 7:58am by Tom Lydon

ETF Spotlight on ProShares UltraShort 20+ Year Treasury (NYSEArca: TBT), part of an ongoing series.

Assets: $6.1 billion

Objective: The ProShares UltraShort 20+ Year Treasury fund tries to reflect the daily performance that corresponds with twice (200%) the inverse (opposite) of the Barclays Capital U.S. 20+ Year Treasury Bond Index.

What You Should Know

  • TBT is a so-called leveraged inverse ETF. It profits when long-dated Treasury bond prices decline, or yields rise. However, the leverage resets on a daily basis.
  • The ETF has an expense ratio of 0.95%.
  • “Investors interested in this fund essentially think the unprecedented moves by the Federal Reserve to pump liquidity into the financial system will ultimately result in higher inflation and sinking dollar value,” according to Morningstar analysts. “Investors should also hold the thesis that the flight to quality will ultimately reverse itself, causing Treasury rates to rise.”
  • As we are beginning to transition out of record low interest rates, bond prices will begin to fall when rates start to rise and yields would increase, putting an investor’s principal at risk. If this situation plays out, TBT would benefit from falling bond prices.
  • Direxion Daily 20 Year Plus Treasury Bear 3x Shares (NYSEArca: TMV) is a similar bearish ETF that uses 300% leverage.

The Latest News

  • TBT recently crossed above its 50-day EMA. [Treasury ETF Damage Centered in 5-Year Note.]
  • Treasury bonds “are trading at the lower end of their historical yields and there is not a whole lot of room for price appreciation,” Morningstar says in a profile of TBT. “Inflation, the risk-free rate, and dollar demand are all highly interrelated with multiple forces acting simultaneously on each of the primary drivers.”
  • Treasuries declined Wednesday after Greek lawmakers voted in favor of austerity measures, unwinding some of the safe-haven trade. [Treasury ETFs Down for Third Straight Day.]
  • The market is concerned over the U.S. debt ceiling. Also, the Fed’s bond-buying program, known as QE2, ends this week.
  • Investors may be demanding greater yields to compensate for higher perceived risk.
  • Institutional investors may be rotating capital out of Treasuries.
  • Lower bond prices may suggest investors anticipate the economy picking up again in the second half of 2011.

For past stories in this series, visit our ETF Spotlight category.

ProShares UltraShort 20+ Year Treasury

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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