Tag Archives: TBF

ETF Lets Investors Short High-Yield Bonds

ProShares today launched the first ETF that provides inverse exposure to the high-yield bond market. The ProShares Short High Yield (SJB) seeks to provide 100% the opposite daily performance of the Markit iBoxx $ Liquid High-Yield Index, before expenses. The ETF lists on NYSE Arca and charges an expense ratio of 0.95%.

Today’s volume was a measly 7,700 shares and the fund ended flat at its launch price of $40.

“High-yield bonds have had a strong rebound since the financial crisis, with indexes reaching all-time highs and high-yield funds attracting significant inflows over the past two years,” said Michael L. Sapir, chairman and CEO of ProShares Advisors in a written statement. “For investors who believe that high yield bonds are ripe for a pullback, SJB can be used to help hedge against or to seek to benefit from potential declines.”

The iBoxx $ Liquid High Yield Index has gained 12.6% over the past year, and 7.4% over the past three years on an annualized basis. It currently yields about 8%. To get the positive returns on this index check out the iShares iBoxx $ Liquid High Yield Corporate Bond Fund (HYG).

Inverse ETFs are not buy-and-hold instruments. As always, inverse funds only guarantee the inverse performance on a daily basis. That means if the market falls 10% over a three-month period, but experiences a lot of volatility during that time, you won’t necessarily receive a 10% return. For instance, ProShares UltraShort 20+ Year Treasury ETF (TBT) seeks to return twice the inverse daily performance, or 200%, of the Barclays Capital 20+ Year U.S. Treasury Index. In 2010, the index rose 9.38%, which means the ETF should have seen a return of negative 18.76%. However, because of volatility, the fund’s actual return was negative 26.32%.

This is ProShares’ fifth inverse bond ETFs. ProShares’ other four inverse bond ETFs are benchmarked to Treasury bonds. These include:

  • UltraShort 20+
  • UltraShort 7-10 Year Treasury (PST)
  • UltraShort TIPS (TPS)
  • Short 20+ Year Treasury (TBF)

These four ETFs have garnered more than $7 billion of assets since launching less than three years ago.

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ProShares Launches Mild Short Bond Fund

With interest rates near 0%, the only direction they can go is up. And as anyone who has ever read a story about bonds knows, when interest rates go up, bond prices fall. When that will happen is anyone’s guess. But ProShares is getting ready for that day. ProShares timed the market perfectly last time by launching a series of ETFs to short the equities markets just in time to capitalize on the crash that started in October 2007. Now, they are priming the market for the popping of the bond bubble.

The ProShares Short 20+ Year Treasury ETF (TBF), a fund designed to provide short exposure to long-term U.S. Treasury bonds, launched Thursday on the NYSE Arca. This ETF will try to match the inverse performance of the Barclays Capital 20+ Year U.S. Treasury Index each day. The Barclays Capital 20+ Year U.S. Treasury Index trackes the performance of U.S. Treasury bonds with maturities of 20 years or greater.

ProShares says it’s launching this in “direct response to strong investor demand for a single beta2 short treasury fund.” I believe them. The inverse bond ETFs will soon become very hot.

Currently, ProShares offers two bond funds that offer a 200% inverse move of two other indexes. The ProShares UltraShort 7-10 Year Treasury ETF (PST) gives double the inverse return of the Barclays Capital 7-10 Year U.S. Treasury Index, while the ProShares UltraShort 20+ Year Treasury ETF (TBT) does the same for the Barclays Capital 20+ Year U.S. Treasury Index. All three charge an expense ratio of 0.95%

Of course, if negative 200% is a little too tame for you, Direxion offers short Treasury funds that seek an inverse 300% return to their tracking indexes. The Daily 10-Year Treasury Bear 3x Shares (TYO) and the Daily 30-Year Treasury Bear 3x Shares (TMV) also charge a fee of 0.95%.

The new ProShares bond ETF stands out from this crowd in that it’s the only one to offer a 1-to-1 inverse ratio, just a mild negative 100% of its tracking index.

TheStreet.com says the recent uproar over leveraged ETFs has led UBS and Ameriprise to stop selling the funds.