NightShares Uses XONE for Cash Collateral Management | ETF Trends

BondBloxx Investment Management recently launched a suite of eight duration-specific U.S. Treasury ETFs, which seek to offer investors a more precise, lower-cost way to get exposure to U.S. Treasury Securities. One way that these funds can be used is for cash collateral management, which is how NightShares is using the BondBloxx Bloomberg One Year Target Duration US Treasury ETF (NYSE Arca: XONE).

NightShares is an ETF provider focused on capturing value from the “night effect,” a phenomenon whereby overnight markets have historically outperformed the daytime trading session on a risk-adjusted basis. In June, NightShares launched its first two ETFs: the NightShares 500 ETF (NYSE Arca: NSPY) and the NightShares 2000 ETF (NYSE Arca: NIWM). In October, the firm launched the NightShares 500 1x/1.5x ETF (NYSE Arca: NSPL).

The issuer allocates assets through a combination of stocks, U.S. Treasuries, and futures contracts or total return swaps. So, rather than buy and sell the Treasuries and manage the cash itself, NightShares uses XONE as a collateral vehicle to back up its futures contracts in NIWM and NSPL.

“It makes a lot of sense for us. Managing the cash collateral is time intensive,” said Bruce Lavine, CEO of NightShares. “It’s hard to get the scale that BondBloxx might get, so for a very low fee, we thought it would make sense as part of our cash flow.”

BondBloxx co-founder Tony Kell told VettaFi that investing in this ETF is “more convenient than the three other options,” which are to sit on cash, trade T-bills, or invest in money market funds.

“Unlike sitting on cash, this will give them big yield,” Kelly said. “You could replicate it with T-bills, but that’s a laborious process, whereas the solution here is we do that for you for 3 basis points. And money market funds are also expensive.”

Launched in October of 2021 to provide precision ETF exposure for fixed income investors, Kelly co-founded BondBloxx with ETF industry leaders Leland Clemons, Joanna Gallegos, Mark Miller, Brian O’Donnell, and Elya Schwartzman. The team has collectively built and launched over 350 ETFs at firms including BlackRock, JPMorgan, State Street, Northern Trust, and HSBC.

In addition to the eight target-duration U.S. Treasury ETFs, BondBloxx has launched 19 high-yield products since February, including seven industry sector-specific high-yield bond ETFsthree ratings-specific high-yield bond ETFs, and one short-duration emerging market bond ETF.

“BondBloxx has continued to launch innovative products since its founding and has expanded the ETF universe with targeted products where there is white space,” said Todd Rosenbluth, head of research at VettaFi. “Their broad range of fixed income funds makes them a firm to watch as the asset category grows.”

For more news, information, and analysis, visit the Night Effect Channel.