Direxion To Close Daily Two-Year Treasury ETFs

by on November 16, 2010 | ETFs Mentioned:

Direxion, one of the largest providers of leveraged ETFs, has been extremely active on the product development front in 2010, rolling out a number of products that offer investors an opportunity to double down (or triple down) on various asset classes. But the company’s product line will shrink a bit in coming weeks, as firm has announced that it will close down the Daily 2-Year Treasury Bull 3x Shares (TWOL) and the Direxion Daily 2-Year Treasury Bear 3x Shares (TWOZ). The closure was recommended by Rafferty Asset Management, the adviser for the Direxion Shares ETF Trust.

“Direxion is focused on only offering solutions that provide exposure to tradable sectors and markets,” said Dan O’Neill, President and CIO in a press release. “We believe in delivering products that directly meet the demands of sophisticated investors who seek to capitalize on changing market conditions. While interest in 2-Year Treasuries has fallen, investors are displaying ongoing interest in our longer-term Treasury 3x ETFs for transparent and magnified exposure to the Treasury markets.”

Between the close of trading on November 30 and December 7, the funds will be in the process of liquidating assets and will not trade on the NYSE Arca. Shareholders remaining in the funds as of December 7 will have their shares redeemed for cash as that time [see How To Survive An ETF Liquidation].

Leveraged Bond ETFs

Bonds have been on a wild ride throughout 2010, thanks to concerns over the health of the global economy and more recently speculation over the impact of the Federal Reserve’s QE2 program. Investors looking to profit from shifts in sentiment surrounding fixed income markets have found effective tools in the Leveraged Bond ETFdb Category. Products in this category offer investors the chance to play the Treasury market with 2x or 3x leverage, which can lead to spectacular losses or gains in a very short period of time–especially given the uncharacteristic choppiness in bond markets throughout 2010.

Investors have clearly gravitated towards longer-term leveraged bond funds; the ultra-popular ProShares UltraShort 20+ Year Treasury Bond Fund (TBT) currently has more than $5.3 billion in assets–more than the rest of the category combined. Also popular are TBT’s bull counterpart (TBF) and the Direxion Daily 20+ Year Treasury Bear 3x Shares (TMV) [see Shorting Long-Term Treasurys: Four Different ETF Plays].

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Disclosure: No positions at time of writing.