A Less Risky Way to Short the Bonds Market

This week???s featured exchange-traded fund (ETF), ProShares Short 20+ Year Treasury (TBF), is another way for investors to take advantage of widely expected interest-rate hikes by the Fed.

Similar to the ProShares UltraShort 20+ Year Treasury ETF (TBT), which was the topic of last week???s ETF Talk, TBF seeks to deliver daily results that equate to the inverse of an index that consists of U.S. Treasuries with maturities longer than 20 years. Compared to TBT, which uses leverage to obtain double the inverse return of the same index, TBF is a less aggressive and less risky fund.

Since these inverse bond ETFs are designed to move in the opposite direction of the U.S. Treasuries Bonds index, many investors use them to hedge against interest rate risk.

TBF has $722.42 million in total assets and has an average daily trading volume of $17.37 million, making it a very liquid and tradeable fund. While TBF is not the segment leader, recent concerns about rising interest rates have led the fund into an upward trend.

For investors who are wondering why TBF only holds Treasuries with maturities longer than 20 years, it is because in the event of a series of interest rate increases, Treasuries that are locked into longer maturities will be hit the hardest. Consequently, achieving a return that is the inverse of the performance of those Treasuries in such a case will yield the most gains.

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