Exchange traded funds indexed to long-term U.S. Treasury bonds are on a losing streak due to investor preference for riskier assets such as stocks, and hints of progress on Europe’s debt crisis.
Now Goldman Sachs (GS) and some other Wall Street firms are recommending clients short Treasuries to profit from a rise in yields and lower bond prices. Still, betting against U.S. government bonds has been a very unprofitable activity in recent years.
“If there’s been one reliable market theme over the past several years, it’s that betting against U.S. Treasury debt has been a big, honking loser. The landscape is littered with bad calls that the bond market’s end is nigh, most notably Bill Gross’s call last year,” writes Mark Gongloff at WSJ.com’s MarketBeat blog. “But Goldman Sachs is wading into that breach once again, telling clients this morning that bonds are too expensive, and their yields too low, relative to the strength of the economy.”
There are several ETFs that short Treasuries – they rise when bond prices fall. The largest by assets include the $3.2 billion ProShares UltraShort 20+ Year Treasury (TBT), ProShares UltraShort 7-10 Year Treasury (PST), ProShares Short 20+ Year Treasury (TBF) and Direxion Daily 30-Year Treasury Bear 3X (TMV). Since most of these ETFs use leverage, they’re not suitable as buy-and-hold investments.
U.S. Treasury ETFs were among 2011’s top performers but have gotten off to shaky start this year. [Treasury ETFs Stumble Into 2012]
The iShares Barclays 20+ Year Treasury Bond Fund (NYSEArca: TLT) was down for the fourth straight session on Monday and has surrendered its 200-day exponential moving average.
Yields on the 10-year note, meanwhile, have managed to climb back above 2% “as speculation European Union finance ministers will make progress to resolve the region’s sovereign-debt crisis reduced demand for the safest securities,” Bloomberg reported Monday.
Ron Coby at Minyanville on Monday called the U.S. bond market a bubble that is perfectly set up to burst. Although the bear call on bonds “has made a lot of famous people look stupid,” Coby added “the air appears to be coming out of the biggest bubble since the dot-com days.”
iShares Barclays 20+ Year Treasury Bond Fund
