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Utility bears at five-year high as bond yields rise

  • Another example of the negative sentiment toward utilities: The cost of hedging against losses in utility shares has risen to a five-year high, Bloomberg reports, as implied volatility has risen nearly 9% to 14.19 in the past month for the Utilities Select Sector SPDR Fund (XLU).
  • Investors have increased bearish bets on utilities, sending the number of shares sold short to 14.9M, a fourfold increase in two months; almost 13% of the outstanding stock has been borrowed to wager on declines, the most since Sept. 2009.
  • Utilities are sensitive to interest rates because the group competes with bonds for investors seeking stable returns, investment officer Scott Armiger says, still liking XLU since “all you need is one market correction and [the negative sentiment] can change in a heartbeat."
  • Other ETFs: IDU, VPU, RYU, PUI, UPW, SDP, FXU, PSCU, FUTY, UTLT
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