Inverse ETFs designed to short U.S. Treasuries are sitting on losses this year as yields remain near historic lows despite repeated warnings that Treasury bonds are a bubble poised to burst.

ProShares Short 20+ Year Treasury (NYSEArca: TBF) is down about 8% this year. The ETF delivers 100% of the inverse, or opposite, return of an index of long-term Treasuries, on a daily basis.

A pair of leveraged bearish ETFs, ProShares UltraShort 20+ Year Treasury (NYSEArca: TBT) and Direxion Daily 20+ Year Treasury Bear 3x Shares (NYSEArca: TMV), have lost about 16% and 25%, respectively, according to Morningstar. [Shorting Treasury Bonds with ETFs]

In fairness, these products are designed for traders rather than buy-and-hold investors, so their long-term returns aren’t very relevant. However, the losses do illustrate that betting against Treasuries hasn’t worked very well this year.

“The world has been very bearish on bonds for years and has been very wrong,” writes James Bianco of Bianco Research at The Big Picture blog. “At some point the bond bears are going to be right. But after a decade of crying wolf, it is hard to listen to these calls.”

‘Danger on two fronts’

Treasury yields are still extremely low with the 10-year note yielding less than 1.7%. U.S. government bonds have enjoyed a multi-decade bull market but investors have been warned for years the party has to end sometime.

The Federal Reserve and its quantitative easing programs have helped keep rates depressed, and Fed has pledged to keep rates low until 2015. Also, reduced risk appetites and Europe’s debt crisis have kept a steady bid under U.S. Treasuries.

Of course, the definition of a bubble is that it goes higher and longer than most investors expect. Still, investors who have piled into Treasuries and bond ETFs could get burned when rates eventually rise. Bond yields and prices move in opposite directions.

Savers who have flooded into bonds with very low yields “face danger on two fronts: on the one hand, their income could be eroded by inflation, while on the other, the value of their holdings could fall sharply when interest rates do start to rise,” the Financial Times recently reported.

‘Worst nightmare’

The New York Post compares U.S. Treasuries in baby boomers’ portfolios to a “ticking time bomb ready to explode, and most investors know little about it.”

Due to the generational rally in U.S. bonds, investors have been trained that the asset class is risk-free and that they can’t lose money.

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