Direxion launches inverse leveraged US high yield bond ETP

Jun 20th, 2016 | By | Category: Fixed Income

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Short and leveraged exchange-traded product provider Direxion has launched a new ETP offering investors double the inverse daily performance of an index of US-listed high yield bonds. The Direxion Daily High Yield Bear 2X Shares (HYDD). It is listed on the NYSE Arca.

Direxion launch inverse leveraged US high yield bond ETF

The Direxion Daily High Yield Bear 2X Shares (HYDD) provides double the daily inverse performance of the Barclays US High Yield Very Liquid Index.

The product’s reference index is the Barclays US High Yield Very Liquid Index. If the index rises by 1% over the course of the day’s trading, the Direxion ETP will gain 2%. The index tracks US dollar-denominated, high yield, fixed-rate, taxable corporate bonds that have a remaining maturity of at least one year and $600m or more of face value outstanding.

High yield bonds are those debt instruments with a credit rating of Ba1/BB+/BB+ or below using the middle rating of Moody’s, S&P, and Fitch, respectively.

The index’s yield to maturity is 7.3% and its effective duration is 4.3 years. The index is tilted towards the corporate-industrial (88.1%) and corporate-financial (8.5%) sectors. The quality breakdown of the index is BB (42.8%), B (41.2%) and CCC or lower (16.0%).

The largest ETF to track a long exposure to the aforementioned index is the SPDR Barclays High Yield Bond ETF (NYSE Arca: JNK) which has over $11.9bn in assets under management. JNK has a total expense ratio of 0.40%.

“While high yield bonds have been embraced by those looking for yield and higher returns, traders and investors are now preparing for potential pullbacks due to the uncertain US interest rate climate and the corresponding impact on high yield markets,” said Sylvia Jablonski, Managing Director at Direxion. “But, it can be expensive to change the asset and security allocation of portfolios. Our High Yield Bear Leveraged Fund is a simple and cost-effective hedge for tactical managers who want to capitalise on these changing markets.”

The new Direxion offering has a TER of 0.80% due to a contractual fee waiver in place until September 2017. At that point the fund’s TER will revert to 0.83%.

All data as of 31 May 2016.

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