More investors are using exchange traded funds to express the view that interest rates will rise, although yields on the 10-year Treasury note remain stubbornly low at around 2%.
Recent activity in bond ETFs shows some investors are positioning to profit if U.S. Treasury yields rise and bond prices decline. [Inverse Treasury ETFs]
ProShares UltraShort Barclays 20+ Year Treasury (TBT) and Direxion Daily 20 Year Plus Treasury Bear 3X Shares (TMV) are leveraged inverse ETFs that rise when bond prices fall. They are designed as trading vehicles rather than buy-and-hold products. Bond prices and yields move in opposite directions.
Doug Kass, president of Seabreeze Partners Management, at TheStreet earlier this week wrote that he was “all-in” ProShares UltraShort Barclays 20+ Year Treasury.
He cited several factors for the move, including his view that the flight to safety that has lifted U.S. Treasuries is “likely maturing and in its terminal phase.”
Kass also pointed to improving economic data and an already crowded trade in bonds.
“With retail investors and large pension plans heavily skewed away from stocks and into bonds, a spike in interest rates could occur based on a possible (and maybe inevitable) large reallocation trade from bonds into stocks,” he wrote. “Despite little or no real yields on fixed income, sentiment figures on bonds remain at or near all-time-high and bullish levels.”
ProShares UltraShort Barclays 20+ Year Treasury