JPMorgan, the financial behemoth responsible for the first exchange-traded product offering exposure to the MLP sector, expanded its ETN lineup on Tuesday by introducing two products offering inverse leveraged exposure to Treasuries. The new ETNs, the Double Short U.S. Long Bond Treasury Futures ETN (DSTJ) and the Double Short U.S. 10 Year Treasury Futures ETN (DSXJ), offer investors options for leveraging rising rates views at the medium and long parts of the U.S. Treasury curve.
DSXJ will seek to deliver 200% inverse leveraged exposure to the NYSE US 10 Year Treasury Futures Index, a benchmark that seeks to replicate the returns of maintaining a long position in the medium part of the U.S. Treasury curve. DSTJ will offer inverse leveraged exposure to the NYSE US Long Bond Treasury Futures Index, a benchmark that seeks to replicate the returns of maintaining a long position in the longer dated end of the US Treasury curve. Both new products are structured as exchange-traded notes, meaning that they eliminate tracking error but expose investors to the credit risk of the issuer. Both will also reset leverage on a monthly basis.
ETFs offering inverse leveraged exposure to Treasuries have been tremendously popular with investors as expectations for an eventual rate hike take root. The ProShares UltraShort 20+ Year Treasury (TBT) has more than $4 billion in assets, while the -100% version of that fund, TBF, has nearly $500 million. ProShares also offers an UltraShort ETF linked to the Barclays Capital U.S. 7-10 Year Treasury Index. Direxion’s lineup includes ETFs offering -3x daily leveraged exposure to intermediate term (TYO) and long term (TMV) Treasuries. PowerShares recently introduced SBND, a -3x monthly leveraged ETN offering exposure to long-term Treasuries [see Shorting Long-Term Treasuries: Four ETFs Ways To Play].
The launch of the new products from JPMorgan represents the second time in two months an issuer has introduced exposure to Treasuries through the ETN structure. In August iPath rolled out a line of eight exchange-traded notes offering exposure to various spots along the Treasury futures curve, including products delivering inverse exposure to long-term and intermediate-term Treasuries. After nearly two months of trading, those products have been slow to gain traction with investors [see ETNs To Play A Flattening Yield Curve].
The launch of DSXJ and DSTJ triples the size of JPMorgan’s ETN lineup; previously the only product offered by the firm was the ultra-popular Alerian MLP ETN (AMJ). Launched in early 2009, AMJ was the first exchange-traded product offering exposure to the MLP asset class. Since then, a surge of interest in the previously-overlooked corner of the domestic energy market has prompted several other issuers to introduce MLP ETPs, including inverse and leveraged variations as well as the first true ETF offering exposure to the sector [see ALPS Rolls Out MLP ETF].
Disclosure: No positions at time of writing.