Direxion Debuts Short Aggregate Bond, Treasury ETFs

by on March 24, 2011 | ETFs Mentioned:

Direxion, one of the largest issuers of 2x and 3x leveraged ETFs, announced the launch of three products offering daily inverse exposure to fixed income benchmarks. The new -1x Direxion ETFs include:

Total Bond Market Bear 1x Shares (SAGG)

This ETF seeks to deliver daily returns that correspond to -100% of the daily change in the Barclays Capital U.S. Aggregate Bond Index. That benchmark serves as the basis for many of the most popular total bond market ETFs, including AGG and BND, which have aggregate assets of about $20 billion. The underlying index is a broad measure of investment grade fixed income securities, offering exposure to Treasuries, corporate debt, and mortgage-backed securities over a variety of maturities. AGG recently had an effective duration of about 4.5 years [see SAGG fact sheet].

SAGG is the first ETF offering inverse exposure to a broad investment grade bond index; existing products offering inverse or inverse leveraged exposure focus primarily on Treasuries.

Daily 7-10 Year Treasury Bear 1x Shares (TYNS)

This ETF seeks to deliver daily returns equal to -100% of the NYSE 7-10 Year Treasury Bond Index, a benchmark that includes intermediate term debt of the U.S. government. TYNS joins existing Direxion products that offer leveraged exposure to intermediate-term Treasuries; the Daily 7-10 year Treasury Bull 3x Shares (TYD) offers a way to amplify long exposure to this asset class, while the Daily 7-10 year Treasury Bear 3x Shares (TYO) offers a way to bet on declines in bond prices [see TYNS fact sheet].

Daily 20+ Year Treasury Bear 1x Shares (TYBS)

This ETF will deliver daily inverse exposure to the NYSE 20 Year Plus Treasury Bond Index, a benchmark that includes long-dated Treasuries. TYBS also helps to round out the portion of the Direxion product lineup offering exposure to long-term Treasuries; the Daily 20 Year Plus Treasury Bull 3x Shares (TMF) offers 3x long exposure to the same index while the Daily 20 Year Plus Treasury Bear 3x Shares (TMV) serves as the bear counterpart.

Playing A Bearish View On Bonds

There are some indications that investors are growing increasingly bearish on the outlook for fixed income, particularly long-dated securities that exhibit higher sensitivity to interest rate changes. Though a rate hike campaign certainly isn’t imminent, intensifying concerns over inflation have contributed to anxiety over the performance of fixed income securities over the next 12 months or so. Other potential drivers of poor performance for bonds could include elevated oil prices and an increasingly healthy global economy [2010: The Year Of The Bond ETF].

The aforementioned TMV has seen big inflows this year, taking in about $100 million during the first two months of the year and currently maintaining AUM of about $460 million. Other ETFs offering inverse exposure to bonds–particularly those concentrated around the long end of the yield curve–have seen assets surge as well. The ProShares UltraShort Barclays 20+ Year (TBT) has close to $6 billion in assets.

Similar to TBT and TMV, the new Direxion ETFs will reset exposure on a daily basis, meaning that they won’t necessarily deliver returns that correspond to the inverse of the related index over holding periods longer or shorter than a single trading session. Because the new products don’t employ additional leverage (beyond establishing inverse leverage), the impact of compounding will be reduced relative to 2x or 3x products [see How Compounding Can Work For Investors].

-1x First For Direxion

Direxion was initially known as the provider of 3x and -3x ETFs, but the company has diversified its product lineup in recent years to include 2x products as well. Late last year, Direxion launched its first non-leveraged ETF; the Airline Shares (FLYX) offers exposure to the NYSE Arca Airline Index. The three products introduced this week mark the company’s first foray into the -1x space, and expand the suite of Direxion ETFs to more than 40 tickers.

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Disclosure: No positions at time of writing.