ETFs designed to short Treasuries are rallying to open the year as U.S. government debt is off to its worst start to a year since 2009.
Treasury bonds are down nearly 1% so far in 2013.
“It was the biggest decline for a first week since the Treasury was preparing to ramp up debt sales four years ago as it tried to snap a recession,” Bloomberg News reported Tuesday. “Bonds slid after the Federal Reserve indicated it may stop its debt purchases in 2013 and as lawmakers averted the so- called fiscal cliff of spending cuts and tax increases.”
Treasury yields are inching higher and bond prices are falling but it’s difficult to pin down exactly why, due to the Fed’s unprecedented intervention in the bond market after the financial crisis. Yields could be rising on investors taking more risk and moving away from safe havens on expectations the economy will improve.
Inverse Treasury ETFs have moved up along with yields. The exchange traded products move in the opposite direction of bond prices.
For instance, the ProShares UltraShort 20+ Year Treasury ETF (NYSEArca: TBT) added 8.3% over the past week and the Direxion Daily 30-Year Treasury Bear 3x Shares ETF (NYSEArca: TMV) gained 12.4%. Trading volume in inverse Treasury related ETFs is rising as well.