Inverse Treasury ETF Options
Treasuries are bonds issued by the U.S. government. The prices of Treasury securities move inversely to the changes in interest rates. If rates increase, the market price of Treasuries will decrease. An inverse ETF (exchange-traded fund) is designed to increase in value when the tracked index decreases.
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Identification
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An ETF tracks a specific index. Inverse ETFs use derivative instruments to have price movement in the opposite direction of the tracked index.
Sources
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Barclays Capital, the issuer of the numerous iShares ETFs, provides several indexes that track different classes and maturities of Treasury securities. The ProFunds Group issues the ProShares family of inverse and leveraged ETFs.
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Types
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ProShares has three ETFs that are the inverse of Treasury security indexes. The ProShares Short 20+ Year Treasury, symbol TBF, the ProShares UltraShort 20+ Year Treasury, symbol TBT, and the ProShares UltraShort 7-10 Year Treasury, symbol PST, all move inversely to the Treasury prices for the duration indicated.
Effects
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ProShares short funds are designed to move 100 percent in the opposite direction of the daily price change of the underlying index. UltraShort funds are leveraged and are supposed to change 200 percent in daily price opposite the index. If the index falls 1 percent, the inverse, leveraged fund will increase 2 percent.
Considerations
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The value of Treasury securities will fall if interest rates increase. The ProShares Short and UltraShort Treasury ETFs will profit when interest rates increase and decline in value if interest rates decline.
Warning
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The Financial Industry Regulatory Authority, FINRA, warns that leveraged and inverse ETFs are designed to track the daily changes in the underlying index and are not suitable for long-term investments. FINRA advises against holding the funds for more than one trading day.
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References
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