ProShares, a pioneer in the leveraged ETF industry, is planning to expand its product platform with the introduction of two new Treasuries-linked leveraged ETFs. The proposed funds are:
- ProShares Ultra 7-10 Year Treasury
- ProShares Ultra 20+ Year Treasury
Both funds will seek to capture 200% of the daily return of their underlying indexes, and charge an expense ratio of 0.95%. For a more thorough discussion of how these funds will achieve their goals, see our Guide to Leveraged ETFs.
These funds will be symmetrical to two existing offerings from ProShares. The ProShares UltraShort 20+ Year Treasury (TBT) offers 200% leveraged inverse exposure to long-term government bonds, while the ProShares Ultra 7-10 Year Treasury (PST) offers leveraged inverse exposure to intermediate-term Treasuries.
The new funds from ProShares will compete with several Direxion ETFs: the Daily 10-Year Treasury Bull 3x Shares (TYD) and its Bear counterpart (TYO), as well as the Daily 30-Year Treasury Bull 3x Shares (TMF) and its corresponding Bear fund (TMV).
Treasuries were one of the few investments that avoided steep losses during the global recession, but have seen significant declines this year as investors have eased out of safe havens and regained some appetite for risk. The iShares Barclays 20 Year Treasury Bond Fund (TLT) has dropped more than 20% in 2009, while the Barclays 7-10 Year Treasury Index Fund (IEF) has slipped 7%.
Interest Rate Activity?
Interest rates around the world have remained near record low levels for over a year, as central banks try to pull their economies out of a deep recession. And the U.S. has certainly been no exception. Earlier this week, the Treasury Department auctioned off $30 billion of six-month bills at a discount rate of 0.15%, a level not seen in a half century.
Fed officials have kept the federal funds rate (the rate that banks charge each other) at an all-time low of 0% to 0.25% since December. While most believe that the recession has now ended, the Fed isn’t expected to begin raising rates until late in 2010, and perhaps not until 2011, to avoid disrupting a fragile recovery process.
Disclosure: No positions at time of writing.