ProShares Debuts Leveraged Bond ETFs

by: Michael Johnston

ProShares continued to build out its suite of leveraged and inverse bond ETF offerings, debuting two new products on Thursday that offer leveraged exposure to corporate bonds. The new additions to a rapidly-expanding ETF product lineup include options for investors seeking amplified exposure to both investment grade and high yield corporate debt.

The ProShares Ultra Investment Grade (NYSEARCA:IGU) will seek to deliver daily results that correspond to 200% of the daily change in the iBoxx $ Liquid Investment Grade Index. That benchmark serves as the underlying for LQD, the largest offering in the Corporate Bonds ETFdb Category with assets under management of about $13 billion. LQD recently had a 30-day SEC yield of about 4.3% and an effective duration of about seven years. Late last month, ProShares rolled out an inverse ETF (NYSEARCA:IGS) that seeks to deliver daily results equal to -100% of the daily change in that same benchmark.

The other new ETF is the ProShares Ultra High Yield (NYSEARCA:UJB), which will seek to deliver daily returns equal to 200% of the daily change in the iBoxx $ Liquid High Yield Index. That benchmark is the basis for the ultra-popular HYG, the largest product in the High Yield Bonds ETFdb Category with more than $8.5 billion in AUM. Both LQG and HYG are offered by iShares.

ProShares also recently introduced an ETF option for -100% daily exposure to junk bonds. The Short High Yield (NYSEARCA:SJB), which began trading in March, is linked to the same index as UJB.

Leveraged Bond ETFs in Focus

The addition of IGU and UJB brings the number of funds in the Leveraged Bonds ETFdb Category to 19. Those funds have aggregate assets of more than $7 billion, though the massive ProShares UltraShort 20+ Year Treasury (NYSEARCA:TBT) accounts for about $6.1 billion of that total. All of the existing products, however, offer leveraged exposure to Treasurys. The majority of the leveraged ETPs focus on debt issued by the U.S. government, while a trio of PowerShares ETNs focuses on the debt of Italy (NYSEARCA:ITLT), Germany (NYSEARCA:BUNT), and Japan (NYSEARCA:JGBT).

Investors have largely developed a bearish outlook on fixed income in recent months, as anemic yields and narrowing credit spreads have raised red flags for some. The new ProShares funds may be appealing to investors looking to bet on short-term movements in bonds, perhaps capitalizing on overdone sell-offs in the asset class as a result of anxiety over the impact of rising interest rates.

Disclosure: No positions at time of writing.

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