Holders Of US Debt May Someday Wish That They Were Holding This ETF
“Shorting US Treasuries is a slam-dunk trade if ever there was one,” our friend Paul Van Eeden wrote not long ago. “I agree. Treasury yields have been going down along the entire yield curve since 1983. This trend reached a crescendo during the crisis of 2008, when 10-year Treasury yields plunged to 2% and 90-day T-bills paid negative yields. For a few moments in the heat of the credit crisis, some investors were so scared of losing money in any other asset; they took a guaranteed loss just to keep their money “safe.” Better to lose 0.1% on a short- term bond, the theory went, than risk losing 50% on GE (NYSE:GE), Citigroup (NYSE:C), GM (NYSE:GM) or Bank of America (NYSE:BAC),” Addison Wiggin Reports From Howe Street.
Wiggin goes on to say, “Following what we feel is a deeply flawed economic strategy, the Obama administration issued over $2 trillion in government bonds – a record, by a long shot. Mostly with the help of Asian governments, the Treasury managed to sell them all. But many thanks go to the Federal Reserve itself. Through its program of quantitative easing, the Fed bought billions upon billions of Treasury paper to suppress American mortgage rates and ease the pain of the housing bust. This, to put it bluntly, cannot last. The Fed ended quantitative easing on March 30. Mortgage rates have already reached an eight-month high since then. The American government cannot continue financing bailouts and future growth with borrowed money. The national debt stands at 90% of annual GDP, the highest since World War II. In the face of looming entitlement disasters like Medicare and Social Security, our debts might grow even larger… but our creditors will assuredly not grow any kinder.”
“We are very concerned about the lack of stability in the US dollar,” Chinese Premier Wen Jaibao said last month. He oversees the biggest cache of US government debt in the world – roughly $889 billion in US Treasuries. As China’s worries grow – along with the rest of the world’s – creditors will demand higher rates of return. Bond yields will go up, prices will go down.
“When will it happen? How bad will it get? We don’t know. But our money says it’ll happen in the next 10 years. Holders of US debt will wish they were holding something – anything – else. Anything but the promise of a fixed stream of steadily debased US dollars. Investors will wish they sold US bonds short when they had the chance. So how do you short US bonds without going to the trouble of borrowing them? Fortunately, there’s an exchange-traded fund (ETF) that lets you do just that. The ProShares Short 20+ Year Treasury ETF (NYSE:TBF) returns the daily inverse of TLT, the Barclays 20+ Year US Treasury Index. The focus is on long-dated bonds – the securities that Treasury will have the most trouble floating if global confidence in US debt wanes. In the last half of March, Treasury had a series of lousy auctions. TBF responded just as you’d want it to – rising 2% in just a couple of weeks. This is just the beginning. All of that probably makes intuitive sense to you. After all, we’re betting against an investment class that’s gone nowhere but up over the last generation. So don’t be surprised if this asset goes nowhere but down during this generation,” Wiggin Reports.
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We have put together some details on the ProShares Short 20+ Year Treasury ETF (NYSE:TBF) below:
Short 20+ Year Treasury ProShares (TBF)
The investment seeks daily investment results, before fees and expenses, which correspond to the inverse of the daily performance of the Barclays Capital 20+ Year U.S. Treasury Bond Index. The fund normally invests 80% of assets in financial instruments with economic characteristics that should be inverse to those of the index. It may employ leveraged investment techniques in seeking its investment objective. The fund is nondiversified.
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