Boost, a leading European provider of short and leveraged exchange-traded products and a division of US ETF sponsor WisdomTree, has added a further inverse fixed income ETP to its growing armoury of products, this time with the launch of a product linked to US government bonds.
The US Federal Reserve’s confident tone to end quantitative easing by the end of the summer should bode well for Boost’s newly minted inverse Treasury ETP.
Listed on the London Stock Exchange, the newly launched Boost US Treasuries 10Y 3x Short Daily ETP (3TYS) provides triple inverse exposure to the BNP Paribas US Treasury Note 10Y Future Index, an index reflecting the performance of intermediate-term US Treasuries.
The BNP Paribas US Treasury Note 10Y Future Index replicates the return of a long position in front-month 10-year US Treasury note futures contracts, which are traded on CBOT and deliver US government bonds with 6.5-10 years to maturity.
Front-month contracts are the futures contracts with the closest expiry date. Every quarter, before the expiry of the current front-month contract, the index rolls to the next front-month contract.
By virtue of being three times inversely linked to this index, the ETP offers opportunities for both short-term tactical traders looking to capitalise on rising yields (bond prices move inversely to yields) and for longer-term investors looking to hedge existing long fixed income positions.
The triple leverage factor built into the ETP means small movements in the index are accentuated by a factor of three. For example, if the index falls by 1% on a day, then “3TYS” will rise by 3% on that day (less fees and adjustments). Conversely, if the index rises by 1% on a day, then “3TYS” will fall by 3% on that day.
The timing of the launch appears prescient. This year’s unwinding of quantitative easing in the US may have set a precedent for looming interest rate increases as the US economy continues to grow. This, combined with the Fed’s confident tone to end QE by the end of the summer, has driven short and leveraged ETP investors to cut their long position in Treasuries by $659 million and increase their short positions by US$885 million this year (to end of June 2014).
Viktor Nossek, Head of Research at Boost, said: “Growing bearishness of short and leveraged [ETP] investors on fixed income securities was evident in the $1.1 billion in outflows from long positions, globally. Following these large redemptions, 92% of short and leveraged fixed income ETPs’ AUM is now held in short positions, suggesting short and leveraged investors remain overwhelmingly bearishly positioned.”
Hector McNeil, Co-CEO of Boost, added: “It’s very exciting to launch new products especially in new asset classes for the company. The launch of Boost US Treasuries 10Y 3x Short Daily ETP (3TYS) is a first for the LSE and follows closely on the heels of last week’s listing of the Boost Gilts 10Y 3x Short Daily ETP (3GIS)…The addition of Boost US Treasuries 10Y 3x Short Daily ETP (3TYS) will allow investors to make positive returns on 10 year US Treasuries is falling.”
The ETP is Boost’s 79th listing. It has an annual management fee of 0.30%.