NEW YORK (Reuters) – Exchange-traded funds that bet against the U.S. Treasuries market enjoyed their best week in at least two months as longer-dated yields posted their biggest weekly rise since March in a global bond market sell-off this week.
Among these “inverse” ETFs favored by bond bears, the ProShares Short 20-plus Year Treasury ETF rose 5.6 percent this week for the largest such gain since mid-February.
This fund, which had $929.6 million in assets at the end of April, appreciates with a decline in the value of an index compiled by Barclays on U.S. government bonds that mature in 20 years or longer.
On the week, the Barclays 20-plus year Treasury index has fallen 2.02 percent through Thursday after a 3.42 percent loss in April.
The ProShares ETF has riskier cousins, whose share prices move two or three times opposite of the daily change of the Barclays index. These funds posted more eye-catching returns this week.
The $2.98 billion ProShares UltraShort 20-plus Year Treasury ETF, whose value moves twice against the index change, gained 7.7 percent on the week.
The $101.40 million ProShares UltraPro Short 20-plus Year Treasury fund, whose value moves triple against the index change, rose 11.5 percent.
The funds’ average trading volumes picked up this week along with “healthy” inflows of money from investors, said Michael Sapir, chief executive at ProShares Advisors, a Bethesda, Maryland-based firm that oversees these bond ETFs.
While the leveraged UltraShort and UltraPro Short bond ETFs booked hefty gains this week, they are still in red on the year after a horrendous January when global economic worries stoked a dramatic bond rally.
UltraShort and UltraPro shares fell 17.5 percent and 25.3 percent in January, respectively.
“Leverage can work for you or work against you,” Sapir said, but added they have a place in a bond portfolio as “a device to hedge” against rising interest rates.
Some investors cautioned against jumping into this type of fund. They prefer holding higher-yielding corporate bonds as a cushion against a further rise in interest rates and a possible interest rate increase from the Federal Reserve later this year.
“There are better opportunities than shorting the bond market like longing corporates,” said John Bellows, portfolio manager at Western Asset Management Co. in Pasadena, California.
(Reporting by Richard Leong; Editing by David Gregorio)
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