New Barclays Inverse ETF To Play Rising Rate Concerns [ProShares Short 20+ Year Treasury ETF]

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July 29, 2014 4:44pm NYSE:FLAT NYSE:TBF

etfsThe U.S. economy is finally showing signs of strength this year. Job growth in June hit the highest level since September 2008. Other data points like manufacturing and consumer confidence in recent days also came in favor of economic growth.

While all these data points encourage a bullish investing environment, the fixed-income segment feels the gloom thanks to rising rate concerns.

Consequently, the three decade long bond bull market is about to change as the Fed is preparing to fully wrap up its QE program (in the wake of better economic numbers) that kept the rates low synthetically so far and in turn boosted bond prices.

To fight the situation, fund issuers have been trying several options like preferred stock ETFs. A straightaway approach of shorting U.S. Treasuries also warrants consideration. Probably, spurred by this feeling, Barclays has come up with a new product recently in the pursuit of U.S. Treasury Aggregate ETN. The product hit the market on July 14, 2007.

Barclays Inverse US Treasury Aggregate ETN in Focus

The ETN looks to reflect the performance of the Barclays Inverse US Treasury Futures Aggregate Index. The investment objective of the index is to follow the sum of the returns of short positions in equal face values of each of the 2-year, 5-year, 10-year, long-bond and ultra-long U.S. Treasury futures contracts, as per etfdb. The fund costs 43 bps a year.

How might it fit in a portfolio?

Of late, investors are growing increasingly concerned about rising rate risks and stock market turbulence thanks to relentless geopolitical concerns, be it Russia-Ukraine tensions, militant attacks in Iraq or Israel’s attacks on Gaza (read: The Fed’s Valuation Concerns Put These Growth ETFs in Focus).

The Fed has almost decided to leave the five-year long QE era this October with a final reduction of $15 billion in the monthly bond-buying program. Though the central bank committed to closely monitor the economic indicators before hiking interest rates, the possibility of a sooner-than-expected short-term rate hike is making the rounds.

In June, the Fed stated expectations of interest rates hitting 1.25% at the end of 2015, up from 1.0% projected in March. The key rate is expected to go up to nearly 2.5% at the end of 2016, higher than previously projected 2.25%.

Since the product is designed to give the opposite performance in response to the movement in Treasury bond yields on a collective basis (duration wise), investors might find it an intriguing option to play the rising rate worries and make some easy bucks without the need for shifting to stock markets.


The inverse U.S. Treasury space has just a handful of products and we expect this newly launched product to hold its head high in the coming days. Most inverse products in this space target a specific part of the yield curve while this new product note taps each part of the yield curve – 2 year bonds for exposure in short-term products, 5-year bonds for medium-term products and 10-year bonds for the long term. This aggregate approach will help the note to beat the competition in this corner of the market.

Also, expense ratio-wise, the product is the cheapest in the inverse bond ETF space as characterized by Barclays already has some products in the inverse bond space and should face no problems in replicating its prior success (read: 3 Ways to Play Rising Rates with Inverse Treasury ETFs).

Those products are iPath US Treasury 10-year Bear ETN (DTYS) tracking the Barclays Capital 10 Year U.S. Treasury Futures Targeted Exposure Index, US Treasury Long Bond Bear ETN (DLBS) tracking the Barclays Capital Long Bond Futures Targeted Exposure Index, US Treasury 2-Year Bear ETN (DTUS) following Barclays Capital 2 Year U.S. Treasury Futures Targeted Exposure Index, US Treasury 5-year Bear ETN (DFVS) tracking the Barclays Capital 5Y US Treasury Futures Targeted Exposure Index and US Treasury Flattener ETN (FLAT).

At present, the space is headed by ProShares Short 20 Year Treasury (TBF) which has amassed about $1.53 billion in AUM. The product charges 95 bps in annual fees. So basically, the new joinee TARP needs to highlight its uniqueness in aggregate composition and cheap expense ratio to garner investors’ attention in this competitive space.

This article is brought to you courtesy of Zacks.

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