Much to the chagrin of market participants that previously clamored about 10-year Treasury yields rising above 3% this year, those yields have tumbled. Factor in Thursday’s loss of nearly 2% at this writing and 10-year yields are lower by almost 17% in 2014.
That has not been enough to keep some traders from continually betting against Treasuries and they are doing so with leveraged instruments such as futures contracts and exchange traded funds.
The ProShares UltraShort 20+ Year Treasury (NYSEArca: TBT), which seeks to deliver twice the daily inverse performance of the Barclays Capital US Treasury 20+ Year Treasury Bond Index, is off almost 23% year-to-date when accounting for Thursday’s loss. Investors have rewarded TBT with $525.3 million worth of year-to-date inflows, reports Lisa Abramowicz for Bloomberg.
Additionally, “investors have boosted short wagers on Treasuries using futures contracts trading on the Chicago Board of Trade to 56 percent more than their five-year average. A few weeks ago, there were the most since March 2008,” reports Abramowicz.
TBT is not the only inverse bond ETF that has taken in capital even as the bond market has clearly told investors to be long or be wrong. [Alternative Treasury ETFs]
TBT’s triple-leveraged cousin, the Direxion Daily 20-Year Treasury Bear 3X ETF (NYSEArca: TMV) has gained almost $87 million in new asset this year.
Modest inflows have also been seen to ETFs bearish on 7-10 Treasuries. For example, the ProShares UltraShort Lehman 7-10 Year Treasury (NYSEArca: PST) has gained $12.7 million in new assets this year. Investors allocating capital against 7-10 Treasuries are in a minority as the iShares 7-10 Year Treasury Bond ETF (NYSEArca: IEF) is the fourth-best ETF of any type in terms of 2014 inflows with $2.7 billion. [Treasury ETFs Get a Lift]
The iShares 20+ Year Treasury Bond ETF (NYSEArca: TLT) is also on the top-10 inflows list with $1.8 billion.
Here is an interesting fact that highlights just how addicted some investors are to betting against Treasuries: The $525.3 million that has gone into TBT this year is nearly triple the amount gained by the iShares MSCI India ETF (NYSEArca: INDA), an ETF that is up nearly 19%. [Will Investors Return to India ETFs?]
ProShares UltraShort 20+ Year Treasury
Tom Lydon’s clients own shares of TLT.