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U.S. Treasury yields have been on the rise over the past few weeks. The 10-year Treasury yields hit an eight-month high of 4.699% due to a series of better-than-expected data, which indicates a stronger economy. The 2-year yields rose to 4.299%.
The spike in yields has led to a surge in ETFs that bet against U.S. Treasury bonds. We have highlighted five ETFs that led the way over the past week. These include ProShares UltraPro Short 20+ Year Treasury ETF (TTT - Free Report) , Direxion Daily 20+ Year Treasury Bear 3x Shares (TMV - Free Report) , ProShares UltraShort 20+ Year Treasury ETF (TBT - Free Report) , Direxion Daily 7-10 Year Treasury Bear 3X Shares (TYO - Free Report) and ProShares Short 20+ Year Treasury ETF (TBF - Free Report) .
Inverse ETFs provide opposite exposure, which is a multiple (-1X, -2X or -3X) of the performance of the underlying index using various investment strategies, such as swaps, futures contracts and other derivative instruments.
Behind the Surge in Yields
U.S. services sector activity accelerated in December, and the measure of prices paid for inputs also rose to near a two-year high, indicating elevated inflation. Job openings grew to 8.098 million in November, exceeding forecasts for a 7.7 million rise and higher than October's number of 7.839 million.
U.S. manufacturing activity also showed signs of improvement in the final month of 2024. The Institute for Supply Management (ISM) said its manufacturing PMI increased to 49.3 last month, the highest reading since March, from 48.4 in November, as production rebounded and orders rose. This reflects the good health of the economy.
The combination of these data might dial back expectations for Fed rate cuts in 2025. Currently, the Fed is looking for just two rate cuts this year after a 100-bps reduction in rates since September. Any pause in rate cuts will lead to a spike in yields. According to the CME FedWatch tool, the most likely outcome for 2025 is two more rate cuts, bringing the fed funds rate to a target range of 3.75% to 4.00%.
While the incoming Trump administration’s policies, including tax cuts and looser business regulations, will boost economic growth, the policy of a crackdown on illegal immigration and tariffs could add to inflation, thereby limiting the ability of Fed rate cuts (read: Fed Cuts Rates by 0.25%, Signals Fewer Cuts: ETFs to Play).
The three Fed rate cuts have pushed short-term yields down, but long-term yields are still higher. The resilient economy and sticky inflation will continue to drive long-term yields.
ETFs in Focus
ProShares UltraPro Short 20+ Year Treasury ETF (TTT - Free Report) – Up 4.2%
ProShares UltraPro Short 20+ Year Treasury ETF also offers three times the inverse performance of the ICE U.S. Treasury 20+ Year Bond Index. It has an AUM of $30.3 million and an average daily volume of roughly 11,000 shares. Its expense ratio is 0.95%.
Direxion Daily 20+ Year Treasury Bear 3x Shares (TMV - Free Report) – Up 4.2%
Direxion Daily 20+ Year Treasury Bear 3x Shares offers three times the inverse exposure to the same ICE U.S. Treasury 20+ Year Bond Index. With an AUM of $187.4 million, Direxion Daily 20+ Year Treasury Bear 3x Shares charges 87 bps in fees and trades in a solid volume of 2.3 million shares a day on average (read: Will S&P 500 ETFs See Slow Gains in 2025 After Two Strong Years?).
ProShares UltraShort 20+ Year Treasury ETF (TBT - Free Report) – Up 2.5%
ProShares UltraShort 20+ Year Treasury ETF seeks two times the inverse daily performance of the ICE U.S. Treasury 20+ Year Bond Index. It is the most popular and liquid ETF in the inverse Treasury space, with an AUM of $312 million and an average daily volume of 695,000 shares. ProShares UltraShort 20+ Year Treasury ETF charges 91 bps in annual fees.
Direxion Daily 7-10 Year Treasury Bear 3X Shares (TYO - Free Report) – Up 1.6%
Direxion Daily 7-10 Year Treasury Bear 3X Shares provides three times the inverse performance of the ICE U.S. Treasury 7-10 Year Bond Index. It charges 95 bps in annual fees and trades in an average daily volume of roughly 31,000 shares. Direxion Daily 7-10 Year Treasury Bear 3X Shares has accumulated $16.4 million in its asset base.
ProShares Short 20+ Year Treasury ETF (TBF - Free Report) – Up 1.1%
ProShares Short 20+ Year Treasury ETF provides inverse exposure to the ICE U.S. Treasury 20+ Year Bond Index. It has accumulated $87.3 million in its asset base and charges 95 bps in annual fees. Volume is solid at 163,000 shares a day on average.
Bottom Line
Investors should note that such products are extremely volatile and suitable only for short-term traders. Additionally, the daily rebalancing, when combined with leverage, may force these products to deviate significantly from the expected long-term performance figures (see: all the Inverse Bond ETFs here).
Still, for ETF investors who believe that yields will continue to rise, at least in the near term, any of the above products could make an interesting choice. Clearly, a near-term short could be intriguing for those with high-risk tolerance and a belief that the trend is your friend in this corner of the investing world.
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Inverse Treasury ETFs Rallying on Spike in Yields
U.S. Treasury yields have been on the rise over the past few weeks. The 10-year Treasury yields hit an eight-month high of 4.699% due to a series of better-than-expected data, which indicates a stronger economy. The 2-year yields rose to 4.299%.
The spike in yields has led to a surge in ETFs that bet against U.S. Treasury bonds. We have highlighted five ETFs that led the way over the past week. These include ProShares UltraPro Short 20+ Year Treasury ETF (TTT - Free Report) , Direxion Daily 20+ Year Treasury Bear 3x Shares (TMV - Free Report) , ProShares UltraShort 20+ Year Treasury ETF (TBT - Free Report) , Direxion Daily 7-10 Year Treasury Bear 3X Shares (TYO - Free Report) and ProShares Short 20+ Year Treasury ETF (TBF - Free Report) .
Inverse ETFs provide opposite exposure, which is a multiple (-1X, -2X or -3X) of the performance of the underlying index using various investment strategies, such as swaps, futures contracts and other derivative instruments.
Behind the Surge in Yields
U.S. services sector activity accelerated in December, and the measure of prices paid for inputs also rose to near a two-year high, indicating elevated inflation. Job openings grew to 8.098 million in November, exceeding forecasts for a 7.7 million rise and higher than October's number of 7.839 million.
U.S. manufacturing activity also showed signs of improvement in the final month of 2024. The Institute for Supply Management (ISM) said its manufacturing PMI increased to 49.3 last month, the highest reading since March, from 48.4 in November, as production rebounded and orders rose. This reflects the good health of the economy.
The combination of these data might dial back expectations for Fed rate cuts in 2025. Currently, the Fed is looking for just two rate cuts this year after a 100-bps reduction in rates since September. Any pause in rate cuts will lead to a spike in yields. According to the CME FedWatch tool, the most likely outcome for 2025 is two more rate cuts, bringing the fed funds rate to a target range of 3.75% to 4.00%.
While the incoming Trump administration’s policies, including tax cuts and looser business regulations, will boost economic growth, the policy of a crackdown on illegal immigration and tariffs could add to inflation, thereby limiting the ability of Fed rate cuts (read: Fed Cuts Rates by 0.25%, Signals Fewer Cuts: ETFs to Play).
The three Fed rate cuts have pushed short-term yields down, but long-term yields are still higher. The resilient economy and sticky inflation will continue to drive long-term yields.
ETFs in Focus
ProShares UltraPro Short 20+ Year Treasury ETF (TTT - Free Report) – Up 4.2%
ProShares UltraPro Short 20+ Year Treasury ETF also offers three times the inverse performance of the ICE U.S. Treasury 20+ Year Bond Index. It has an AUM of $30.3 million and an average daily volume of roughly 11,000 shares. Its expense ratio is 0.95%.
Direxion Daily 20+ Year Treasury Bear 3x Shares (TMV - Free Report) – Up 4.2%
Direxion Daily 20+ Year Treasury Bear 3x Shares offers three times the inverse exposure to the same ICE U.S. Treasury 20+ Year Bond Index. With an AUM of $187.4 million, Direxion Daily 20+ Year Treasury Bear 3x Shares charges 87 bps in fees and trades in a solid volume of 2.3 million shares a day on average (read: Will S&P 500 ETFs See Slow Gains in 2025 After Two Strong Years?).
ProShares UltraShort 20+ Year Treasury ETF (TBT - Free Report) – Up 2.5%
ProShares UltraShort 20+ Year Treasury ETF seeks two times the inverse daily performance of the ICE U.S. Treasury 20+ Year Bond Index. It is the most popular and liquid ETF in the inverse Treasury space, with an AUM of $312 million and an average daily volume of 695,000 shares. ProShares UltraShort 20+ Year Treasury ETF charges 91 bps in annual fees.
Direxion Daily 7-10 Year Treasury Bear 3X Shares (TYO - Free Report) – Up 1.6%
Direxion Daily 7-10 Year Treasury Bear 3X Shares provides three times the inverse performance of the ICE U.S. Treasury 7-10 Year Bond Index. It charges 95 bps in annual fees and trades in an average daily volume of roughly 31,000 shares. Direxion Daily 7-10 Year Treasury Bear 3X Shares has accumulated $16.4 million in its asset base.
ProShares Short 20+ Year Treasury ETF (TBF - Free Report) – Up 1.1%
ProShares Short 20+ Year Treasury ETF provides inverse exposure to the ICE U.S. Treasury 20+ Year Bond Index. It has accumulated $87.3 million in its asset base and charges 95 bps in annual fees. Volume is solid at 163,000 shares a day on average.
Bottom Line
Investors should note that such products are extremely volatile and suitable only for short-term traders. Additionally, the daily rebalancing, when combined with leverage, may force these products to deviate significantly from the expected long-term performance figures (see: all the Inverse Bond ETFs here).
Still, for ETF investors who believe that yields will continue to rise, at least in the near term, any of the above products could make an interesting choice. Clearly, a near-term short could be intriguing for those with high-risk tolerance and a belief that the trend is your friend in this corner of the investing world.