An exchange traded note that bets against Treasury bonds saw a notable outflow on Monday as two Federal Reserve presidents were out with dovish speeches.
“In the market there was a particularly interesting trade in iPath US Treasury 10 Year Bear ETN (NYSEArca: DTYS), of nearly 50x average daily volume,” WallachBeth Capital said in a note after Monday’s closing bell.
DTYS experienced the largest volume day in the ETN’s history.
“Further, if these trades are outflows, it would represent a nearly 50% reduction in assets under management of the fund. Lastly, it’s worth noting that this appears to be an equally notional size trade to an inflow that occurred on August 19th of this year,” WallachBeth said. “The only difference is the August 19th trade was executed through a cash creation, while [Monday’s] activity traded in the secondary market.”
DTYS rises when Treasury yields rise. In other words, the ETN offers a way for traders to profit from lower Treasury bond prices.
Yields on the 10-year Treasury note spiked as high as 3% earlier this month from a base around 1.7% in the spring. However, yields on the 10-year note have fallen back below 2.7% this week in the wake of the Fed’s decision to not taper its bond purchases.
On Monday, New York Fed President William Dudley warned in a speech that fiscal uncertainties “loom very large” as Congress prepares to hash out a deal to avoid a government shutdown and raise the nation’s debt ceiling, Reuters reported.
Separately, Atlanta Fed President Dennis Lockhart likewise warned that America risked “losing its economic mojo” unless lawmakers worked to reverse declines in labor productivity and new job creation, according to the article.
iPath US Treasury 10 Year Bear ETN