In the options market we have seen bullish call buyers in ProShares UltraShort 20+ Year Treasury Bond (TBT) recently, and this gives us a chance to revisit a theme that we have mentioned on several previous occasions since the summer of 2010.
This is a bet against U.S. Treasury bonds. In other words, investors making this trade are looking for lower bond prices and higher yields.
Since this ETF is designed to provide two times the daily inverse (price) return of the long bond as measured by the Barclays Capital U.S. 20+ Year Treasury Index, the call buying reflects bearish sentiment in terms of near term bond prices.
Thus, higher yields would result in any fall in price in these bonds, and TBT’s price would subsequently rise.
A similar product exists for those looking to trade bearishly against bond prices, and that is Direxion Daily 20 Year Plus Treasury Bear 3X (TMV) which is designed to deliver three times the daily inverse price return of the long bond, but based on a different underlying index (NYSE 20 Year Plus Treasury Bond Index).
In general, in recent months, as equities have rallied with any consistency, we have seen options and ETF players purchasing TBT and or/TMV calls and buying either, or, or both of these ETFs to add to existing short positions in U.S. Treasuries, and/or trade them strategically on small rotational moves in the overall marketplace.
Other instruments that will likely see a pick-up in interest in this environment of institutional appetite to be short treasuries, include PowerShares DB 3X Short 25+ Year Treasury Bond ETN (SBND) , which offer three times leveraged short exposure but with the leverage re-balanced on a monthly basis instead of a daily basis like the aforementioned inverse funds.
Additionally, ProShares UltraPro Short 20+ Year Treasury (TTT) also offers 3 times the daily leveraged short exposure to the long bond.
Then, for those whom are not looking to add leverage to the portfolio and simply want short exposure to long term treasury bond prices, ProShares Short 20+ Year Treasury (TBF) and Direxion Daily 20 Year Plus Treasury Bear 1X (TYBS) are potential alternatives.
ProShares UltraShort 20+ Year Treasury Bond
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- Treasury bonds