Institutional Investors Bet Big on Leveraged Treasury ETF

NEW YORK ( ETF Expert) -- Six months ago to the day, the Dow Jones Industrials was sitting near multi-year highs.

At the same time, one or more institutional investors piled into leveraged intermediate Treasuries. The exchange-traded fund ProShares Ultra 7-10 Year Treasury ( UST). The commitment? $40 million on 25 times normal trading volume.

Back then, it seemed like a long shot to expect significant gains in a leveraged Treasury play. With the 10-year yielding 2%, one needed to see the 10-year yield down around 1.5% in order to sell for a 10% price gain on a two times (200%) leveraged fund.

As if on cue, investors watched May-June gloom erode nearly all of the stock market's year-to-date progress. Equally worthy of note, intermediate Treasuries served as a popular safe haven, as the 10-year yield witnessed lows as remarkable as 1.4%.

Fast forward from May 1 to Nov. 1.

The 10-year yield is back around 1.7%. An institutional investor or several investors purchased $52 million of UST via block trading on 28 times normal volume. The activity is virtually identical to the one that occurred six months ago.

I recognize the importance of garnering income at the middle of the curve. What's more, I own a healthy amount of iShares Intermediate Corporate Credit ( CIU).

That said, I do not currently see enough value in Treasury bond ownership, nor am I inclined to seek price gains that correspond to twice (200%) the daily performance of the Barclays Capital U.S. 7-10 Year Treasury Index.

At present, stocks are pricing in plenty of quantitative easing worldwide, debt crisis containment in the euro-zone and a relatively painless bipartisan compromise on post-election fiscal negotiations. In contrast, the purchaser(s) of UST must feel that a debt crisis flare-up is possible and that a political log-jam in the U.S. is more probable than a speedy resolution.

I certainly don't subscribe to the idea that anyone can predict the future. Still, the fact that this bet worked nicely for an institutional investor on the last go-around is worthy of note.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

Disclosure Statement: ETF Expert is a website that makes the world of ETFs easier to understand. Gary Gordon, Pacific Park Financial and/or its clients may hold positions in ETFs, mutual funds and investment assets mentioned. The commentary does not constitute individualized investment advice. The opinions offered are not personalized recommendations to buy, sell or hold securities. At times, issuers of exchange-traded products compensate Pacific Park Financial or its subsidiaries for advertising at the ETF Expert website. ETF Expert content is created independently of any advertising relationships. You may review additional ETF Expert at the site.

Gary Gordon reads:

Real Clear Markets
Jeff Miller
Charles Kirk
On Twitter, Gary Gordon follows:

Jonathan Hoenig
Doug Kass
Hard Assets Investor

If you liked this article you might like

How Connecticut Is Fighting for Small Business

5 Big Stocks to Trade for Gains

Natural Gas, Cocoa Pop: Market Bits

Cramer's 'Mad Money' Recap: Buy the Dips (Final)

Cramer's 'Mad Money' Recap: Buy the Dips (Final)

Top Stocks With Insider Buying, Buybacks

Top Stocks With Insider Buying, Buybacks