Longer dated U.S. Treasury bonds have seen immense price pressure in recent days (with yields rising steeply) which is observable through TLT (iShares Barclays 20+ Year Treasury Bond, Expense Ratio 0.15%) plunging through both its 200
and 50 day moving averages on heavy trading volume.
The cascading sell-off really started to gain some momentum on Friday when Chairman Bernanke spoke right as the equity markets opened.
TLT has not traded at these price levels since early April, before rising as high as $124.26 on an intraday basis prior to its recent flagging action.
There are several ETPs that target the inverse price performance of longer dated U.S. Treasuries, and these funds are seeing increased activity as one might expect such as TBT (ProShares UltraShort 20+ Year Treasury, Expense Ratio 0.95%), TMV (Direxion Daily 20 Year Plus Treasury Bear 3X, Expense Ratio 0.95%), SBND (PowerShares 3X Short 25+ Year Treasury Bond ETN, Expense Ratio 0.95%).
TBT is designed to deliver two times the daily inverse return of the Barclays Capital U.S. 20+ Year Treasury Index, while TMV seeks to replicate three times the daily inverse return of the NYSE 20 Year Plus Treasury Bond Index.
SBND is a bit different, not only being an ETN where TBT and TMV are ETFs, but instead of resetting the leverage on a daily basis, the fund resets on a monthly basis. So without having the daily sensitivity and volatility, the fund may appeal more to those that are looking for longer holding periods.
Typically during times of higher volatility in the long term Treasury bond market, we see directional options activity as well, and this time around, there is no exception. Yesterday we saw buyers of June 113/117 put spreads in TLT, expressing the sentiment of additional downside from current levels in the near term in TLT.
From a fund flows standpoint, all of the aforementioned ETPs have been quiet in terms of any notable net creation/redemption activity, so there is not much to report from that perspective but we will be mindful to look for any near term signs that might confirm any moves.
iShares Barclays 20+ Year Treasury Bond
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- Treasury bonds