Shorting Treasuries with ETFs

Investors who short-sell securities are essentially betting that their prices will fall and that strategy has worked well for investors who shorted treasuries this year.

According to the Wall Street Journal, yields on 10-year notes have marched steadily higher since bottoming out around 2%, a level not seen since the 1950s.

ETF investors can implement a shorting strategy with the ProShares UltraShort 20+ Year Treasury (TBT) which is already up over 50% this year. The fund aims to deliver daily investment results, that correspond to twice (200%) the inverse (opposite) of the daily performance of the Barclays Capital 20+ Year U.S. Treasury Index. (note – due to compounding effects, this fund may not track its index beyond the one day target).

Will the trend continue? The WSJ column notes that a recent BlackRock report concludes that:

“…the mixture of an unprecedented amount of Treasury-bond offerings along with government support to troubled financial institutions and banks will cause the total amount of Treasurys and other government-backed debt to soar from roughly 25% of the total investment-grade bond market in 2007 to 80% by 2010.”

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