Yields on 10-year Treasuries recovered modestly Thursday from Wednesday’s plunge of more than 5%, but with Federal Reserve tapering no longer in the cards, at least not over the near-term, expectations are in place that U.S. government bond yields will start to fall.
While that should bring relief to asset classes and sectors previously beaten up by soaring Treasury yields, think REITs and utilities as just two examples, other sectors have already shown vulnerability to falling rates. A prime example of a sector that could see price erosion if rates significantly decline is regional banks. [Regional Bank ETFs in Focus on Higher Rates]
Prior to Wednesday, 10-year Treasury yields surged almost 31% in the previous three months. Over the same time, the SPDR S&P Regional Bank ETF (NYSEArca: KRE) soared 10%. Highlighting the correlation between regional banks and higher rates, 10-year yields plunged almost 5.1% on Wednesday, a move that sent KRE down 0.8% on volume that was more than double the daily average. [The Sector ETFs the Fed Forgot to Boost]
KRE fell another 1.8% on Wednesday, but investors can profit from declines in regional bank stocks with a little-known non-leveraged, inverse ETF, the ProShares Short KBW Regional Banking (NYSEArca: KRS).
KRS “seeks daily investment results, before fees and expenses, that correspond to the inverse (-1x) of the daily performance of the KBW Regional Banking Index,” according to ProShares, the largest issuer of inverse and leveraged ETFs.