Ten-year Treasury yields have surged almost 20% over the past month, predictably crimping fixed income exchange traded funds along the way.
On Wednesday, Bloomberg had an illustrative anecdote regarding the recent bond market calamity: “$450 billion has been wiped out across global bond markets over the past few weeks.”
To put $450 billion into context, Apple (NasdaqGM: AAPL) is the only U.S. company with a market value greater than $450 billion. Facebook (NasdaqGM: FB) and Procter & Gamble (NYSE: PG) would have to more than double in size to get $450 billion.
So things are bad for bonds and some bond ETFs, but these are halcyon days for bearish bond funds, such as the Direxion Daily 20-Year Treasury Bear 3X (NYSEArca: TMV). TMV attempts to deliver triple the daily inverse returns of the NYSE Current 20-Year U.S. Treasury Index.
That is not the same index tracked by the iShares 20+ Year Treasury Bond ETF (NYSEArca: TLT), but TMV does an excellent job of delivering triple the inverse returns of TLT. Ten-year yields rising 20% over the past month has sapped TLT to the tune of 9.1% while fostering a 30% gain for TMV. Bond funds with longer durations will exhibit a greater sensitivity to changes in interest rates. [Bearish Bond ETFs Back in Style]
Investors are noticing. On Wednesday, nearly 1.1 million new shares of TMV were created as the ETF climbed 2.4% on volume that was more than double the daily average. TMV entered Wednesday with a May gain of 14.6%, making it the top performer among Direxion’s triple-leveraged bearish ETFs, according to issuer data.
Further solidifying the notion that some traders are betting there is more upside to come for Treasury and are comfortable expressing that view with ETFs like TMV, TMV’s shares outstanding count rose by one million for three weeks ended May 12 and is up 30% this year. [Managing Risk With Geared ETFs]
For the five-day period ended May 12, TMV’s volume was nearly 65% above the trailing 20-day average. The only leveraged Direxion ETF with a larger volume spike over those five days was the Direxion Daily Basic Materials Bull 3x Shares (NYSEArca: MATL).
TMV Shares Outstanding
Chart Courtesy: Bloomberg
Tom Lydon’s clients own shares of TLT.