ETFs That Bet Against Long-Term Treasury Bonds Rise With Yields

(Bloomberg) -- Soaring interest rates have investors buzzing around exchange-traded funds that bet against U.S. government debt.

A pair of ProShares ETFs that short Treasury bonds that mature in 20 years or more posted their best performance in almost two years Wednesday as yields on 10-year notes jumped to a seven-year peak and 30-year Treasuries rose to the highest level since 2014. TBF, which moves inversely to the ICE U.S. Treasury 20+ Year Bond Index, increased 1.8 percent, while TBT, which captures twice the inverse performance of that index, surged 3.6 percent.

Traders took notice. Roughly 1.8 million shares of TBF worth $42 million traded hands Wednesday, about four times the daily average over the past year. TBT, the ultra-short fund, was even more popular, as nearly 6.5 million shares worth $256 million changed hands, more than double the daily average over the past year.

“People are a little freaked out,” said Eric Balchunas, an ETF analyst at Bloomberg Intelligence. “If you see activity in these, it shows there’s a lot of people who are looking to bet on rates moving quickly.”

Investors flocked to the ultra-short bond ETF once again Thursday as few were willing to bet against persistent rising rates given the strong economic growth in the U.S. and a Federal Reserve set to continue tightening. About 4.3 million shares worth more than $175 million had changed hands as of 2:22 p.m. in New York, compared with about 2.5 million shares typically traded each day.

Balchunas warned that investors should be careful with TBT, saying, “if rates shoot up, this thing will be in jackpot mode, but it can return and lose a lot quickly.”

Todd Rosenbluth, director of ETF research at CFRA, added that some investors could be using these risky products as a way to hedge.

“Investors have gravitated more to short and ultra-short term focused ETFs to protect against, rather than bet against, rising rates,” he said.

To contact the reporters on this story: Sarah Ponczek in New York at sponczek2@bloomberg.net;Vildana Hajric in New York at vhajric1@bloomberg.net

To contact the editors responsible for this story: Jeremy Herron at jherron8@bloomberg.net, Eric J. Weiner, Dave Liedtka

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