Today’s moves aside, leveraged exchange traded funds (ETFs) that seek to profit when Treasury prices decline have done well this month as investors continue to worry about big deficits, further rate hikes, inflation and rampant spending.
Rising interest rates and the threat of inflation has bond investors, for the most part, fleeing the scene. John Spence for MarketWatch says the following types of funds are letting investors bet against the longer-dated Treasury shares, which could get hit as the Federal Reserve hikes rates in the future:
- ProShares UltraShort 20+ Year Treasury (NYSEArca: TBT)
- Direxion Daily 30-Year Treasury Bear 3x (NYSEArca: TMV)
- ProShares UltraShort 7-10 Year Treasury (NYSEArca: PST)
Last week, the Federal Reserve upped the emergency loan rates they charge banks. While these rate hikes don’t affect consumers or corporations, the move did put investors on alert for an eventual reality: someday, record low rates are going to go back up. When they do, billions that have been stashed in Treasuries during the financial crisis could be lost. Enter short Treasury ETFs. [Leveraged ETFs Are Popping Up in Many Varieties.]
Rate hikes could be far off, though. Federal Reserve Chairman Ben Bernanke reiterated yesterday that the central bank wouldn’t raise them until the economy was on firmer ground.
Leveraged and inverse ETFs are not for everyone. They’re meant to reflect the daily moves of the market; to hold them longer is to risk them veering further away from their benchmarks. This effect is heightened in volatile markets. [Everything You Need to Know About Leveraged and Inverse ETFs.]
For more stories about leveraged ETFs, visit our long-short ETF category.
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.