Rate hike is back on the table, that too as early as this month, as per the latest comments from Fed Chair Janet Yellen. The Fed altered her statement of monetary policy to “moderately accommodative” from “modestly accommodative”, used in her January speech, indicating that the easy money policy era is nearing an end.

As a result, the odds for a March rate hike skyrocketed to 82% from less than 20% a week ago, according to the CME Group’s FedWatch tool. The Fed stated that the economic data points over the past couple of months have been assuring with the economy growing at an above-average pace, job gains being robust, and inflation going up slightly. Particularly, Americans have an optimistic view of the economy with confidence hitting the highest level in more than 15 years. This is especially true as, the Conference Board consumer confidence index jumped to 114.8 in February from a revised 111.6 in January, suggesting growing optimism on pro-growth policies.

Further, global fundamentals have improved with resilient recovery in Europe, stabilizing China, and battling deflation in Japan that have receded fears of slowdown (read: 3 Reasons to Buy Eurozone ETFs Now).

These good tidings have led to rising yields. Yields on 10-year Treasury notes logged in the largest weekly climb since November 10, rising 13.1 bps last week. The Strategas Research Partners chief investment strategist stated that the Trump administration policy mix is highly reflationary, which will steepen the yield curve over the next few years. The 10-year Treasury yields could rise up to 6% from the current 2.47%.

Against such a backdrop, investors are pulling their money out of the long-term bond market. That said, the ultra-popular iShares 20+ Year Treasury Bond ETF TLT, with an asset base of around $5.2 billion and an average daily volume of around 10 million shares, saw capital outflow of nearly $412 million over the past week and shed 2%. The fund has a Zacks ETF Rank of 5 or ‘Strong Sell’ rating (read: Why Are Active Fixed Income ETFs Flushing the Market?)

The rout has resulted in an opportune moment for bond investors to capitalize on beaten-down bonds in the form of inverse or leveraged inverse ETFs. For them, we have highlighted seven ETFs that could be worth buying for huge gains in a short span.

How to Play?

Inverse ETFs provide opposite exposure that is a multiple (-1X, -2X or -3X) of the performance of the underlying index using various investment strategies, such as, swaps, futures contracts and other derivative instruments. All these have witnessed outsized gains in the past one-week period.

ProShares Short 20+ Year Treasury ETF TBF

This product provides inverse exposure to the ICE U.S. Treasury 20+ Year Bond Index. The index holds 36 securities in its basket with an average maturity of 26.40 years and effective duration of 17.66 years. The fund has accumulated $758.7 million in its asset base and charges 94 bps in annual fees. Volume is solid at 698,000 shares a day on average. The ETF was up nearly 2% over the past five days.

Direxion Daily 20+ Year Treasury Bear 1x Shares TYBS

This ETF also offers inverse return of the ICE U.S. Treasury 20+ Year Bond Index. It has amassed $5.4 million in its asset base and trades in a light volume of 5,000 shares. The fund charges 45 bps in annual fees and added 2% in the same time frame.

iPath US Treasury 10-Year Bear ETN DTYS

This ETN seeks to deliver an inverse return of the Barclays 10Y US Treasury Futures Targeted Exposure Index, which tracks inverse moves in yields from buying 10-year Treasury bonds. It is unpopular and illiquid with AUM of $54.9 million and average daily volume of about 33,000 shares. DTYS charges 75 bps in fees per year and surged 9.9% in the last one-week period.

iPath US Treasury Long Bond Bear ETN DLBS

This note tracks the inverse return of the Barclays Long Bond US Treasury Futures Targeted Exposure Index, which targets the inverse moves in yields from buying long-dated Treasury bonds. It has accumulated just $22.5 million in its asset base and charges 75 bps in annual fees. Volume is light, exchanging nearly 8,000 shares in hand on average. DLBS gained about 6.8% last week (read: Yellen Gives Hawkish Signals: 5 ETF Plays).

ProShares UltraShort 20+ Year Treasury ETF TBT

This fund seeks to deliver twice (2x) the inverse performance of the ICE U.S. Treasury 20+ Year Bond Index. It is the most popular and liquid option in the inverse bond ETF space with AUM of about $2.2 billion and average daily volume of roughly 2.7 million shares. It charges 93 bps in annual fees and added 4% in the past week.

ProShares UltraPro Short 20+ Year Treasury ETF TTT

Investors having a more bearish view and higher risk appetite could find TTT an interesting pick. This fund also tracks the same index but offers three times (3x) inverse exposure. It is often overlooked by investors as depicted by its AUM of $97.4 million and average daily volume of roughly 42,000 shares. Expense ratio comes in at 0.95%. TTT gained 6.4% over the past five days.

Direxion Daily 20+ Year Treasury Bear 3x Shares TMV

This ETF also offers three times (3x or 300%) the inverse exposure to the same ICE U.S. Treasury 20+ Year Bond Index. With AUM of $445.6 million, the fund charges 82 bps in fees and trades in a solid volume of 1.1 million shares a day on average. It gained about 6% in the same timeframe.

Bottom Line

As a caveat, investors should note that such products are extremely volatile and suitable only for short-term traders. Additionally, the daily rebalancing – when combined with leverage – may force these products to deviate significantly from the expected long-term performance figures (see: all the Inverse Bond ETFs here).

Still, for ETF investors who are bearish on Treasuries for the near term, either of the above products could make an interesting choice. Clearly, a near-term short could be intriguing for those with high-risk tolerance, and a belief that the “trend is the friend” in this corner of the investing world.

Want key ETF info delivered straight to your inbox?

Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

ISHARS-20+YTB (TLT): ETF Research Reports

PRO-ULS L20+YRT (TBT): ETF Research Reports

DIR-D 20+Y T BR (TYBS): ETF Research Reports

DIR-D 20Y+T BR3 (TMV): ETF Research Reports

IPATH-UST 10YBR (DTYS): ETF Research Reports

IPATH-UST LB BR (DLBS): ETF Research Reports

PRO-ULT 3X20YT (TTT): ETF Research Reports

PRO-SH 20+ TBI (TBF): ETF Research Reports

To read this article on Zacks.com click here.

Zacks Investment Research

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Source: Custom News Article from Zacks Investment Research for ETFHeatMap.com