This was originally published on RealMoney on Friday, Jan. 23.
Editor's note: Eric Oberg is back again. We have received a few questions about the ProShares UltraShort 20+ Year Treasury (TBT) - Get Report ETF, so rather than answer each individually, here is a quick answer to the question below.
Does the TBT -- Treasury UltraShort -- have the same compounding issues that other UltraShort ETFs have?
OK, I'm glad this came up again. My thinking has really started to evolve around the concept of being short Treasuries. (I have been asked by probably half a dozen people over the last week and a half, through the Web site and in person, about the concept of shorting Treasuries.)
As for the technical issues, the short answer is yes -- as a double short, it is subject to the same issues. However, it is really the volatility that kills these things, and it appears that the less volatile sectors do not suffer from the dramatic underperformance as the highly volatile sectors (and I believe that the narrower the sector, the more they influence the underliers, and thus they create their own volatility). But the Treasury market is probably the deepest we have, so activity in any Treasury ETF shouldn't really wag the dog.
For full disclosure, I really only looked in depth at performance of
ProShares UltraShort Financials
ProShares UltraShort Real Estate
ProShares UltraShort FTSE/Xinhua China 25
, just because those sectors seemed to be the most talked about, and those also moved around the most.
Now, with that said, I have been thinking about the concept of shorting Treasuries, just in general.
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At the time of publication, Oberg had no positions in the stocks mentioned.
Eric Oberg worked in fixed income, currencies and commodities for Goldman Sachs for 17 years before retiring as a managing director.