The credit market plays a critical role in the economy by bringing together borrowers and lenders to meet short and long-term financing needs. The credit market encompasses all...
Read moreInvestors utilize inverse bond ETFs to capitalize on downward moves in bond prices while mitigating interest rate risks. These ETFs use derivatives like futures contracts to deliver inverse (-1x) daily returns of key bond benchmarks. Here are five popular inverse fixed-income ETFs.
TBF inversely tracks the daily performance of the ICE 20+ Year Treasury Bond index, making it a tool for short and long-dated government bonds. The index covers treasuries with maturities exceeding 20 years. TBF can benefit from rising rates that negatively impact the prices of long-term bonds. Assets under management stand at $561 million.
With 2x inverse leverage, TBT is a more aggressive option to profit from declining longer-term treasury prices. The ETF uses futures contracts to deliver -2x daily returns on the same ICE 20+ Year Treasury Bond index. TBT has attracted $1.6 billion in assets under management.
Also Read: The Credit Market: An Essential Component of the Financial System
For investors seeking inverse exposure to junk bonds, SJB tracks -1x daily performance of the Markit iBoxx $ Liquid High Yield Index. The index follows U.S. dollar-denominated high-yield corporate bonds with below-investment-grade credit ratings. AUM stands at $48 million.
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SJB provides -2x inverse exposure to investment-grade corporate bonds, meaning those with BBB and above credit ratings. It targets the Markit iBoxx $ Liquid Investment Grade Index of U.S. corporate bonds across maturities. SJB has gathered $45 million in assets under management.
Unlike the other ETFs targeting specific bond segments, SAGG provides inverse exposure across a broad basket of investment-grade government, corporate, and mortgage bonds. The ETF tracks the Bloomberg US Aggregate Bond Index, aiming to benefit when bond prices fall. SAGG has attracted $38 million in assets.
While powerful tools, inverse leveraged ETFs carry risks if misused. Investors should utilize prudent position sizing and risk management when trading these products. But applied judiciously, inverse bond ETFs can help fixed-income traders implement tactical strategies to profit from bearish bond trends.
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