iPath, one of the largest issuers of exchange traded notes (ETNs) announced today a significant expansion of its product line. The firm introduced eight new ETNs linked to indexes measuring the performance of various corners of the government bond market. The fixed income ETNs join an existing product line that includes debt instruments offering exposure to commodities, currencies, emerging markets equities, and alternative strategies. The new ETNs, which consist of four pairs of long and short ETNs, are:
- U.S. Treasury Steepener ETN (STPP)
- U.S. Treasury Flattener ETN (FLAT)
- U.S. Treasury 2-Year Bull ETN (DTUL)
- U.S. Treasury 2-Year Bear ETN (DTUS)
- U.S. Treasury 10-Year Bull ETN (DTYL)
- U.S. Treasury 10-Year Bear ETN (DTYS)
- U.S. Treasury Long Bond Bull ETN (DLBL)
- U.S. Treasury Long Bond Bear ETN (DLBS)
The most unique of the new products are the Steepener and Flattener ETNs. STPP offers exposure to the Barclays Capital U.S. Treasury 2 Year/10 Year Yield Curve Index, a benchmark that measures the return of a strategy that seeks to capture returns that are potentially available from a “steepening” or “flattening” of the U.S. Treasury yield curve through a notional rolling investment in U.S. Treasury note futures contracts. The index is designed to increase in response to a “steepening” of the yield curve and decrease in response to a “flattening” of the yield curve. To accomplish this, the index tracks the returns of a long position in 2-Year Treasury futures contracts and a short position in 10-Year Treasury contracts. FLAT offers inverse exposure to the same index; it is designed to increase in value when the gap between 2 Year and 10 Year Treasury yields narrows.
The other six funds all offer exposure to indexes that track the returns of a notional investment in positions in various Treasury futures contracts traded on the Chicago Board of Trade (CBOT). DTUL and DTUS are linked to the Barclays Capital 2 Year U.S. Treasury Futures Targeted Exposure Index, DTYL and DTYS are linked to the Barclays Capital 10 Year U.S. Treasury Futures Targeted Exposure Index, and DLBL and DLBS are linked to the Barclays Capital Long Bond U.S. Treasury Futures Targeted Exposure Index.
The eight new products are all structured as ETNs; they are senior, unsubordinated, unsecured debt securities issued by Barclays Bank PLC. As such, investors in these securities take on some degree of risk in the event of default by the bank. On the other hand, tracking error is minimized since there fund isn’t required to actually engage in the “roll” process as futures contracts approach expiration [also see Basics of ETN Investing].
All of the new ETNs will charge an expense ratio of 0.75%–a significantly higher fee than existing products offering exposure to the same asset class. Expense ratios for the 20 ETFs currently found in the Government Bonds ETFdb Category range from 0.09% to 0.75% with an average of just 0.28%.
Disclosure: No positions at time of writing.
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