Yields Are Soaring: Here’s How To Short Treasury With ETFs

Soaring yields once again took all the sheen away from the U.S. Treasury market. This is especially true as 10-year yields jumped to the highest level since 2011 at 3.23% backed by a slew of upbeat economic data.

August job data last week showed that the rate of unemployment fell to 3.7% for the first time in nearly 50 years, while the Institute for Supply Management revealed that the U.S. services sector expanded at its fastest pace on record in September. The ISM non-manufacturing index also rose to 61.6 last month, the highest level since the index was created in 2008. Additionally, the National Federation of Independent Business’ small-business sentiment gauge is at its highest level since it started 44 years ago. The combination of the data has led to inflationary pressure, which in turn fueled speculation of faster-than-expected rates hike from the Federal Reserve, pushing bond yields higher.

Further, the spike came amid escalating worries over the United States and China’s trade clash that could drive inflation higher, thereby pushing Treasuries down.

Moreover, hawkish comments from Federal Reserve policymakers have added to the strength in yields. Federal Reserve Chairman Jerome Powell said the central bank is “a long way” from getting rates to neutral, a fresh sign of further hikes. He further added that the ultra-accommodative policy to bring the economy out of the Great Recession is no longer needed. The central bank, which started tightening monetary policy in 2015, has raised rates thrice this year and is expected to do so again in December.

Against such a backdrop, investors are putting their money in ETFs that bet against U.S. Treasury bonds. For them, we have highlighted seven inverse or leveraged inverse ETFs that could be worth buying for huge gains in a short span.

How to Play?

Inverse ETFs provide opposite exposure that is a multiple (-1x, -2x or -3x) of the performance of the underlying index using various investment strategies, such as, swaps, futures contracts and other derivative instruments. All these have witnessed outsized gains so far this year.