As the markets anticipates with almost complete certainty that the Federal Reserve will restart raising interest rates in December, bearish or inverse Treasury bond exchange traded funds have climbed.
For example, the ProShares UltraShort 20+ Year Treasury (NYSEArca: TBT), which tries to reflect the -2x or -200% daily performance of the Barclays U.S. 20+ Year Treasury Bond Index, increased 19.7% over the past month.
Meanwhile, the ProShares UltraPro Short 20+ Year Treasury (NYSEArca: TTT), which takes the -3x or -300% daily performance of the Barclays U.S. 20+ Year Treasury Bond Index, surged 30.8%, and the Direxion Daily 20-Year Treasury Bear 3X (NYSEArca: TMV), which tracks the -3x or -300% daily performance of the NYSE 20 Year Plus Treasury Bond Index, advanced 30.1% over the past month.
In contrast, the iShares 20+ Year Treasury Bond ETF (NYSEArca: TLT) declined 9.0% as yields on 30-year Treasury bonds broke back above 3.0%
Treasury bond prices have fallen while yields rose as traders raised bets on a Fed interest rate hike ahead. CME Group’s closely watched FedWatch Tool briefly reflected a 100.2% probability of a Fed rate hike next month, reports Alexander Osipovich for the Wall Street Journal.
The surprise was attributed to a never-before-seen glitch in the way CME calculates the odds of a rate increase, according to the exchange operator. Toward Tuesday afternoon, options traders were pricing in a 93.5% chance of a Fed rate hike in December, compared to a 58% chance two months ago and a 12% chance in late June.
[related_stories]The markets have more or less come in line with the Fed’s own projections for two rate hikes during 2017 as well.
Fed Chairwoman Janet Yellen has already told lawmakers that the Fed could move “relatively soon,” reports Min Zeng for the Wall Street Journal. Yellen argued that tightening rates now would prevent the Fed from having to abruptly raise rates in the future to prevent an overheating economy. The near-term risk is “falling behind the curve,” Yellen said.
For more information on the Treasuries market, visit our Treasury bonds category.