3 Bearish U.S. Treasury ETNs that are Outperforming Year-to-Date

The common notion by the capital markets that the Federal Reserve would raise interest rates on Wednesday was confirmed as Fed Chairman Jerome Powell capped off a two-day monetary policy meeting with the announcement that the federal funds rate will increase by 25 basis points to 2.25. This hawkish tone provided fodder for risk-on investors in fixed-income who migrated away from safe-haven bets like government debt.

During their two-day policy meeting, the Fed likely pored over the latest economic data that buttressed a strong economy, including second quarter gross domestic product showing an increase of 4.2%. In addition, the extended bull market has added more fuel to the proverbial flame with the S&P reaching record-breaking levels as companies like Apple and Amazon have crossed the $1 trillion market capitalization mark.

Key Highlights Announced by Wednesday’s Rate Hike:

  • Federal funds rate increases by 25 basis points to 2.25
  • Long run federal funds rate will be around 3%
  • Three more rate hikes are forecasted for 2019
  • 2018 growth forecast raised to 3.1%
  • Long run inflation expectations unchanged
  • Accommodative language removed


Source: tradingeconomics.com

This is the third rate hike installed by the Fed this year and continued rate hikes could see more fixed-income investors moving away from U.S. Treasuries, which have benefitted bearish exchanged-traded notes (ETNs). Below are three ETNs that have been capitalizing on this weakness in government debt with strong year-to-date performances, according to Yahoo Finance figures.

1. iPath US Treasury 10-year Bear ETN (NadaqGM: DTYS)–20.44% YTD

DTYS seeks to provide investors with inverse exposure to the Barclays 10Y US Treasury Futures Targeted Exposure Index™. The index itself is designed to decrease in response to an increase in the 10-year Treasury note yields and to increase in response to a decrease in 10-year Treasury note yields. The index targets a fixed level of sensitivity to changes in the yield of the current “cheapest-to-deliver” note underlying the relevant 10-year Treasury futures contract at a given point in time.

2. iPath US Treasury Long Bond Bear ETN (NasdaqGM: DLBS)–19.22%YTD

DLBS seeks to provide investors with inverse exposure to the Barclays Long Bond US Treasury Futures Targeted Exposure Index™. The Barclays Long Bond US Treasury Futures Targeted Exposure Index™ is designed to decrease in response to an increase in the long-dated Treasury bond yields and to increase in response to a decrease in long-dated Treasury bond yields. The index targets a fixed level of sensitivity to changes in the yield of the current “cheapest-to-deliver” bond underlying the relevant long-dated Treasury futures contract at a given point in time.

3. Barclays Inverse US Treasury Aggt ETN (NasdaqGM: TAPR)–18.05% YTD

TAPR seeks a return based on the performance of the Barclays Inverse US Treasury Futures Aggregate Index™. The index employs a strategy that tracks the sum of the returns of periodically rebalanced short positions in equal face values of each of the 2-year, 5-year, 10-year, long-bond and ultra-long U.S. Treasury futures contracts. The index is composed of an equal synthetic short position in each Treasury futures contract that is either the Treasury futures contract closest to expiration or the next Treasury futures contract scheduled to expire immediately following the front contract.

Related: Fed Projects at Least Three More Rate Hikes in 2019

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