3 Inverse Bond ETFs to Buy in November for Safety

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The stock market could be on shakier ground with the increasing probability of higher-for-longer interest rates and concerns about how long the economy can maintain its resilience. Hence, top inverse bond ETFs ProShares UltraShort 20+ Year Treasury (TBT), Direxion Daily 20+ Year Treasury Bear 3x Shares (TMV), and ProShares Short 20+ Year Treasury (TBF) could be ideal buys to hedge market risks and deliver solid returns. Read on….

With inflation still well above the Fed’s long-term target of 2%, interest rates will likely stay higher for longer. Also, the fast pace of GDP growth in the third quarter is expected to slow down in the coming quarters. Amid several macroeconomic uncertainties, the stock market could experience wild swings in the upcoming months.

Thus, investors could invest in best invest bond ETFs Direxion Daily 20+ Year Treasury Bear 3x Shares (TMV), ProShares UltraShort 20+ Year Treasury (TBT), and ProShares Short 20+ Year Treasury (TBF) this month to hedge against market uncertainties.

The Consumer Price Index (CPI), a closely followed inflation gauge, rose 0.4% in September and 3.7% from a year earlier, above forecasts for 0.3% and 3.6%, respectively. While inflation has declined from its peak in June 2022 of 9.1%, it is still well above the Federal Reserve’s 2% long-term goal of 2%.

The Commerce Department reported Gross Domestic Product (GDP), a measure of goods and services produced in the U.S., grew at a 4.9% annual pace in the third quarter, ahead of the 4.7% estimate. But the better-than-expected GDP report wasn’t good enough to get stocks back on track.

Further, economists expect GDP growth to slow to 0.7% in the fourth quarter of 2023 and 1% over the four quarters of next year.

The Federal Reserve agreed to hold the key federal funds rate in a target range of 5.25%-5.5%, the highest level in 22 years, in its recent meeting on November 1. This was the second consecutive meeting that the Federal Open Market Committee (FOMC) chose to hold after a string of 11 rate hikes since March 2022, including four this year.

However, the FOMC indicated that there might be a final rate increase before the year-end. Moreover, as the inflation threat lingers, top economists appear to agree on one thing: interest rates will likely stay higher for longer.

JPMorgan’s chief market strategist and co-head of global research, Marko Kolanovic, said that the nation’s biggest bank is maintaining a “somewhat negative” outlook for stocks. He also warned stocks could plummet nearly 20%.

“[We’re] not necessarily calling immediate sharp pullback, but we do think that recession will eventually happen,” Kolanovic said. “I’m not sure how we’re going to avoid [a recession] if we stay at this level of interest rates.”

He further acknowledged that the U.S. labor market was still robust; however, he hinted that cracks were beginning to show regarding American consumerism.

“Rates could go a little higher, which [would be] problematic for a lot of people,” he added. “This [recession] will eventually come…the upside versus downside in stocks is not that great.”

Amid this backdrop, investors could use inverse bond ETFs to profit from market declines and hedge their portfolios from rising interest rate risks.

In light of these market trends, let’s look at the fundamentals of the three best Inverse Bonds ETFs, beginning with number 3.

ETF #3: Direxion Daily 20+ Year Treasury Bear 3x Shares (TMV)

TMV offers daily inverse (-3x) exposure to the ICE U.S. Treasury 20+ Year Bond Index. Using a combination of swaps and futures, the fund gives investors -3x exposure to daily moves in T-bonds with more than 20 years left to maturity. It can be a powerful tool for sophisticated investors who feel educated enough on the specific economy and its inner workings.

TMV has assets under management (AUM) of $401.50 million. The fund’s only holding is iShares 20+ Year Treasury Bond ETF with a 100% weighting. The ETF has an expense ratio of 1.01% compared to the category average of 0.96%.

Over the past five days, TMV fund flows came in at $32.54 million. In addition, it has a beta of negative 0.13, indicating that investment tends to increase in price when the general market price falls and vice versa.

The fund pays an annual dividend of $0.87, translating to a 1.81% yield at the prevailing price level. TMV’s dividend payouts have grown at a 104% CAGR over the past three years and a 43.3% CAGR over the past five years. The fund’s four-year average yield is 0.84%.

TMV has gained 67.8% over the past month and 14.7% over the past year to close the last trading session at $45.02. Also, the fund has surged 67.8% year-to-date. It has a NAV of $44.92 as of November 2, 2023.

TMV’s POWR Ratings reflect this promising outlook. The fund’s overall A rating equates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

The fund has an A grade for Trade. Of the 20 ETFs in the B-rated Inverse Bonds ETFs group, TMV is ranked #7.

To access TMV’s POWR Ratings (Peer and Buy & Hold), click here.

ETF #2: ProShares UltraShort 20+ Year Treasury (TBT)

TBT provides 2x short leveraged exposure to the broad-based Barclays Capital U.S. Treasury 20+ Year Index, making it a powerful tool for investors with a bearish short-term outlook for U.S. long-term treasuries.

With $573.20 million in AUM, TBT’s top holdings are the U.S. Dollar with a 32.52% weighting, United States Treasury Bills 0.0% 13-FEB-2024 at 19.32% and followed by United States Treasury Bills 0.0% 21-MAR- 2024 and United States Treasury Bills 0.0% 28-MAR- 2024 at 14.41% and 14.40%, respectively.

The fund has a total of 8 holdings, with its top 10 assets comprising 99.99% of its AUM.

The fund has an expense ratio of 0.90%, lower than the category average of 0.96%. TBT fund flows were $6.07 million over the past five days.

TBT pays an annual dividend of $1.12, which translates to a 2.67% yield at the current price level. The fund’s dividend payouts have grown at an 81.8% CAGR over the past three years and a 41.1% CAGR over the past five years. Its four-year average yield is 1.04%.

TBT has gained 43% over the past six months and 27.8% year-to-date to close the last trading session at $40.06. It has a beta of negative 0.09. The fund’s NAV was $40.06 as of November 2, 2023.

TBT’s sound fundamentals are reflected in its POWR Ratings. The fund has an overall rating of B, which translates to a Buy in our proprietary rating system.

The fund has an A grade for Trade and a B for Buy & Hold. Of the 20 ETFs in the B-rated Inverse Bonds ETFs group, TBT is ranked #6.

Click here to see all the TBT ratings.

ETF #1: ProShares Short 20+ Year Treasury (TBF)

TBF offers daily inverse (-1x) exposure to a market-value-weighted index that tracks the performance of US Treasury securities with remaining maturities greater than 20 years. This fund is a valid choice for tactical positioning/hedging against rising interest rates, but it’s important to keep in mind that -1x leverage results is greater impact from the effects of compounding.

The fund tracks the U.S. Treasury 20+ Year Index (-100%). TBF has an AUM of $219.70 million. It has a total of 3 holdings. TBF’s holdings include U.S. Dollar with a 56.36% weighting, United States Treasury Bills 0.0% 28-MAR-2024 at 24.17%, and United States Treasury Bills 0.0% 13-FEB-2024 with a 19.47% weighting.

The fund has an expense ratio of 0.92%, lower than the category average of 0.96%. Over the past three months, TBF fund flows came in at negative $17.86 million over the past month. Also, it has a beta of negative 0.05.

TBF pays an annual dividend of $0.79, translating to a 3.01% yield at the current price level. Its dividend payouts have grown at an 92.8% CAGR over the past three years. The fund’s four-year average yield is 0.80%.

TBF has gained 20.2% over the past six months and 8.2% over the past year to close the last trading session at $25.52. Also, the fund has climbed 14.6% year-to-date. It has a NAV of $25.53 as of November 2, 2023.

TBF’s POWR Ratings reflect this strong outlook. The ETF’s overall A rating translates to a Strong Buy in our proprietary rating system.

The fund has a grade of A for Buy & Hold and Trade. The fund has a B grade for Peer. It tops the list of 20 ETFs in the same group.

To access all the POWR Ratings for TBF, click here.

What To Do Next?

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TBT shares fell $0.31 (-0.77%) in premarket trading Friday. Year-to-date, TBT has gained 27.23%, versus a 13.89% rise in the benchmark S&P 500 index during the same period.


About the Author: Mangeet Kaur Bouns

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Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.

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