ETF Spotlight: Treasury Flattener

Nov. 6.11 | About: iPath U.S. (FLAT)

ETF spotlight on iPath US Treasury Flattener ETN (NYSEArca: FLAT), part of an ongoing series.

Assets: $45.21 million.

Objective: The iPath U.S. Treasury Flattener Exchange Traded Note reflects the daily inverse performance of the Barclays Capital U.S. Treasury 2Y/10Y Yield Curve Index, which implements a sophisticated investment strategy that allows investors to bet on slope of the yield curve – the level of the index increases as the yield curve steepens and decreases as the yield curve flattens. “FLAT employs a strategy that seeks to make money when the two-year versus 10-year yield spread declines,” investment researcher Morningstar explains.

Holdings: To achieve its target objective, the fund holds a weighted “long” position in 2-year Treasury futures contracts and a weighted “short” position in relation to 10-year Treasury futures contracts.

What You Should Know:

  • Barclays is the fund issuer.
  • FLAT has an expense ratio of 0.75%.
  • The fund is down 2.60% in the last three months, up 8.38% over the last three months and up 22.50% year-to-date.
  • FLAT performs when the the spread between two-year and 10-year yields declines, or “flattens,” by shorting the two-year note and going long the 10-year note.
  • “Typically the [Treasury yield] curve is upward sloping because investors usually demand more interest for locking their money up for longer periods,” Morningstar analyst Timothy Strauts writes in a profile of the ETF. “The yield curve is steep. This elevated state can not last in the long term, which may make now an opportune time to buy this fund.”
  • The iPath US Treasury Steepener ETN (NYSEArca: STPP) takes the opposite strategy.

iPath US Treasury Flattener ETN

Max Chen contributed to this article.

Disclosure: None