The iShares 20+ Year Treasury Bond ETF (NYSEArca: TLT) gained nearly 4% last month while the iShares 7-10 Year Treasury Bond ETF (NYSEArca: IEF) tacked on 1.3%.
Since the start of the third quarter, only three ETFs have added more new assets than IEF and last month, IEF was the top asset-gathering ETF. Not just among bond ETFs, but among all ETFs. Those anecdotes speak the difficulty and risk in being short Treasury ETFs during a year in which 10-year Treasury yields have tumbled 19%.
Still, some market observers see the rally in Treasury ETFs, particularly the longer-date variety such as TLT, as a case of too far too fast.
In a note out Wednesday, MKM Partners recommended shorting TLT noting “that as of Friday TLT was up nearly 17% YTD on an absolute basis and nearly 19% on a total return basis, which would rank as the ETF’s third-best year since its creation in 2002, trailing only 2008 and 2011, both of which gained over 28%,” reports Michael Aneiro for Barron’s.
MKM’s downside targets for TLT are $113 to start and then $110, according to Barron’s. Neither represents significant downside for the $4.2 billion, which in August posted its best monthly performance since January. [Treasury ETFs Rally in August]
Only three ETFs have added more new assets this year than IEF and the Treasury-heavy Vanguard Total Bond Market ETF (NYSEArca: BND) and the iShares Core U.S. Aggregate Bond ETF (NYSEArca: AGG) both rank among the top-10 asset-gathering ETFs.
However, some traders have stubbornly attempted to short Treasuries with some doing so with leveraged ETFs. The ProShares UltraShort 20+ Year Treasury (NYSEArca: TBT), a double-leveraged bearish play on TLT, has added nearly $1.27 billion in assets this year despite tumbling almost 29%. To put that $1.27 billion into context, that is about $65 million more than investors have put into the Vanguard High Dividend Yield ETF (NYSEArca: VYM), an ETF that is up 9.4% this year. [Crazy to Short Treasury ETFs]
Traders have not stopped at TBT. The Direxion Daily 20-Year Treasury Bear 3X Shares (NYSEArca: TMV) has added nearly $125 million since the start of the current quarter and has seen positive creation activity over the past 30 days, according to Direxion data.
iShares 20+ Year Treasury Bond ETF
Tom Lydon’s clients own shares of TLT.