Lyxor builds out yield curve ETF offering

Sep 11th, 2019 | By | Category: Fixed Income

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Lyxor has rolled out three new ETFs that enable investors to express a view on expected changes in the shape of the US Treasury and German Bund yield curves.

Lyxor rolls out suite of US and European yield curve ETFs

Lyxor’s suite of yield curve ETFs enables investors to express views on expected changes in the shape of the US Treasury and German Bund yield curves.

The new ETFs stand to gain from a flattening of the US Treasury yield curve, a steepening of the German Bund yield curve, and a flattening of the German Bund yield curve.

They join an existing ETF that profits from a steepening of the US Treasury yield curve.

All four ETFs come with total expense ratios of 0.30%.

Philippe Baché, Head of Fixed Income ETFs at Lyxor, commented, “Our priority is making sure that investors have all the tools they need to invest in these ever-changing markets.

“Views on the direction of interest rates differ among investors, and our innovative ETFs allow them to express their beliefs on the future shape of benchmark yield curves.”

The slope of a yield curve is typically influenced by factors such as Central banks’ monetary policy, market expectations on policy action, and inflation expectations.

US Treasury yield curve

Lyxor’s existing Lyxor US Curve Steepening 2-10 UCITS ETF (STPU LN) listed on the London Stock Exchange (LSE) at the beginning of August. The fund is linked to the Solactive USD Daily (x7) Steepener 2-10 Index which consists of two components: a long position in two-year US Treasury bond futures and a short position in ten-year US Treasury ultra-bond futures. The futures contracts are rolled on a quarterly basis.

The strategy uses a multiplier to both the short and long legs, resulting in a leveraged long/short position. This means that a one basis point increase in the steepness of the curve (the difference between ten-year and two-year yields) corresponds to an increase of approximately seven basis points for the fund.

Factors such as cash drag, compounding effects from daily leverage, and/or futures roll costs may, however, lead to a multiplier that is different from seven. Lyxor also notes that, due to the high multiplier effect, the fund is best held for a short to medium-term period and is aimed at professional investors who understand and are willing to bear the risks of leveraged investments.

Lyxor has now also launched the Lyxor US Curve Flattening 2-10 UCITS ETF (FLTU LN) which is linked to the Solactive USD Daily (x7) Flattener 2-10 Index. The index uses a similar methodology to provide leveraged (x7) exposure to a flattening of the US Treasury yield curve between two- and ten-year yields.

Both the US steepening and flattening ETFs have been cross-listed on Euronext Paris, Deutsche Börse Xetra, and Borsa Italiana.

German Bund yield curve

Lyxor’s other new ETFs are the Lyxor EUR Curve Steepening 2-10 UCITS ETF (ESTP GY) and the Lyxor EUR Curve Flattening 2-10 UCITS ETF (FLTE GY).

The funds track the Solactive EUR Daily (x7) Steepener 2-10 Index and Solactive EUR Daily (x7) Flattener 2-10 Index, respectively, which provide leveraged (x7) exposure to a steepening or a flattening of the German Bund yield curve between two- and ten-year yields.

The steepener ETF takes a long position on a basket of Euro Schatz futures and a short position on a basket of Euro Bund futures. Conversely, the flattener ETF takes a long position on a basket of Euro Bund futures and a short position on a basket of Euro Schatz futures.

Euro Schatz futures are based on German government Bundesschatzbrief (notes) with a remaining term of between 1.75 and 2.25 years.

The ETFs have been listed on Euronext Paris, Deutsche Börse Xetra, and Borsa Italiana.

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