Short Bets in $14 Billion Treasury ETF Say Yield Calm Will Break

Katie Greifeld
·2 min read

(Bloomberg) -- As Treasury yields stall near their prepandemic highs, investors are wagering that the tranquility will be short-lived.

Short interest in the $14 billion iShares 20+ Year Treasury Bond exchange-traded fund (ticker TLT) has climbed to about one-fifth of the shares outstanding, the highest since early 2017, according to data from IHS Markit Ltd. Bearish bets have risen from 7% at the start of 2021 amid the fund’s 13% year-to-date drop.

While the bond selloff that’s hammered TLT appears to have leveled off with 30-year yields hovering near 2.4% for the better part of a month, the surge in short bets suggests investors don’t expect the calm to last long. Though yields have already moved “significantly” after the market aggressively repriced a brighter growth outlook, turbulence is likely to return as economic data is released over the next few months, according to Principal Global Investors.

“This period of calm is likely short-lived,” said Seema Shah, the firm’s chief strategist. “We expect investors to grapple with the higher inflation and growth environment repeatedly through 2021. Each piece of strong economic and inflation data will unnerve investors again, driving volatility higher.”

Investors have pulled almost $2.6 billion from TLT so far in 2021, putting the fund on track for the worst year of outflows since its inception in 2002. Upgraded growth forecasts and climbing inflation expectations have dragged down long-duration funds such as TLT and the $40 billion iShares iBoxx $ Investment Grade Corporate Bond ETF (ticker LQD), which posted its biggest one-day outflow on record last week.

The ICE BofA MOVE Index, a gauge of U.S. bond volatility, has eased to roughly 62 from a peak of 76 reached in late February, the highest level in 11 months. While the bond market is in a “holding pattern” after positioning for much more robust economic growth, the next catalyst will come from whether or not the data ultimately deliver, according to Richard Bernstein Advisors LLC.

“Treasuries have largely priced the current Covid stimulus, the promise for infrastructure, and an economic recovery,” said Michael Contopoulos, the firm’s director of fixed income and portfolio manager. “The next leg will be determined by hard data -- actual increases in inflation, more than just promise for better days. Over the course of the year and in 2022, we should expect more volatility and trending higher rates.”

For more articles like this, please visit us at bloomberg.com

Subscribe now to stay ahead with the most trusted business news source.

©2021 Bloomberg L.P.

Recommended Stories

  • FDA Rejects Acadia’s Supplemental New Drug Application For NUPLAZID; Shares Plunge

    Shares of Acadia Pharmaceuticals plunged more than 15% in early trade on Monday after the biopharmaceutical company received a Complete Response Letter (CRL) from the US Food and Drug Administration (FDA), which rejected the supplemental New Drug Application (sNDA) for NUPLAZID (pimavanserin). The therapy was designed for the treatment of hallucinations and delusions associated with dementia-related psychosis (DRP). The CRL indicated that the application cannot be approved in its present form as it lacks substantial evidence of effectiveness to support approval, despite prior agreements with the Division of Psychiatry regarding the pivotal Phase 3 HARMONY study design targeting a broad DRP patient population analyzed as a single group, Acadia (ACAD) said. The CRL also stated that the Division considers the Phase 2 Alzheimer’s disease psychosis study -019, a supportive study in the sNDA filing, as inadequate and uncontrolled. According to the letter, it was a single center study with no type I error control of secondary endpoints, in which certain protocol deviations were visible. (See Acadia stock analysis on TipRanks) However, the company believes that these observations have no impact on the positive results regarding the study’s primary endpoint and overall conclusions of efficacy. It should also be noted that the CRL did not indicate any safety concerns. Acadia CEO Steve Davis said, “We will immediately request a Type A meeting to work with the FDA to address the CRL and determine an expeditious path forward for the approval of pimavanserin in DRP.” On March 10, Merrill Lynch analyst Tazeen Ahmad downgraded the stock to Hold from Buy. The rest of the Street is cautiously optimistic about the stock with a Moderate Buy consensus rating. That’s based on 14 analysts suggesting a Buy and 5 analysts recommending a Hold. The average analyst price target of $43.44 implies around 69.8% upside potential to current levels. Related News: Abbott’s BinaxNOW COVID-19 Ag Self Test Cleared For Emergency Use In US Acuity Brands Pops 13% After 2Q Earnings Beat, Sales Disappoint United Therapeutics Receives FDA Approval For Tyvaso Therapy; Shares Pop 15% More recent articles from Smarter Analyst: Ellington Financial Increases Monthly Dividend By 40%; Street Remains Bullish General Motors’ 1Q Vehicle Sales Rise On Strong Auto Demand Ford’s U.S. Sales Rise 1% In 1Q On EV Strength Eloxx Buys Zikani Therapeutics In An All-Stock Deal; Shares Gain

  • Shohei Ohtani provides boost in a pinch as Angels beat Astros, go to 4-1

    Shohei Ohtani entered the game in the eighth inning and scored the go-ahead run as the Angels defeated the Houston Astros 7-6 to improve to 4-1.

  • Philippines Plans U.S. Dollar Bonds ‘Before Rates Skyrocket,’ Finance Chief Says

    (Bloomberg) -- Philippines Finance Secretary Carlos Dominguez said the government plans to sell dollar bonds before interest rates rise, and will look for new revenue sources and ways to wind down debt next year.“We will tap the U.S. bond market before rates skyrocket,” Dominguez said in an interview with Bloomberg Television’s Kathleen Hays on Tuesday. He didn’t provide more details on the debt plan.The Philippines plans to borrow a record 3 trillion pesos ($62 billion) from domestic and international sources this year, according to budget data presented to Congress in August. Last week, it raised 55 billion yen ($500 million) through a 3-year Samurai bond sale.Economic growth this year “is going to be lower than what we expected” as virus cases surge, Dominguez said.The Philippines extended a lockdown in Manila and nearby provinces to until April 11 to control a rise in infections, and the two-week strict movement curbs will likely shave off 0.8 percentage points from this year’s growth, Economic Planning Secretary Karl Chua said Monday. Last year’s lockdown -- among the world’s longest -- pushed gross domestic product to plunge 9.5%, the worst since at least 1946.Economic managers will meet Thursday to review growth targets. President Rodrigo Duterte, as part of a plan to drive GDP growth to as high as 7.5%, set a record spending goal this year of 4.5 trillion pesos.Debt TrimmingThe government doesn’t intend to increase its borrowing from the Bangko Sentral ng Pilipinas, Dominguez said, and aims to wind down its loans from the central bank later this year or early next.While the government isn’t planning to introduce new tax measures at this time, Dominguez said the finance department is looking at ways of “winding down” debt, including other possible revenue sources.The government aims to cap the budget deficit at 8.9% of GDP this year before lowering the gap to 7.3%.“I’d like to hear of solutions to the world debt problem,” Dominguez said of discussions at the International Monetary Fund and World Bank spring meetings this week. “This is a problem of ours as well as problems of many countries.”(Updates with more details throughout.)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.

  • Norwegian cancels additional sailings amid COVID-19 pandemic

    Norwegian Cruise Line may have announced a restart plan abroad Tuesday, but that didn't indicate an end to the litany of cruise cancellations the company has seen.

  • How an acclaimed author decided to write fiction for Black women like her

    Deesha Philyaw talks about the long gestation of her collection 'The Secret Lives of Church Ladies,' a Times Book Prize finalist for first fiction.

  • Norwegian Cruise Line unveiled 3 new cruises this summer after announcing new vaccine requirement for all passengers and crew

    Several cruise lines - including Royal Caribbean and Virgin Voyages- have already mandated the COVID-19 vaccine for its guests, crew, or both.

  • Trumpworld refuses to defend Matt Gaetz and called his response to sex-trafficking allegations an 'absolutely embarrassing trainwreck'

    Matt Gaetz hasn't heard a peep from Trumpworld despite being one of former President Donald Trump's most loyal attack dogs.

  • Georgia Governor Slams MLB for Moving All-Star Game to Colorado Despite Similar Voting Laws

    Georgia Governor Brian Kemp on Tuesday blasted Major League Baseball’s decision to pull the 2021 All-Star game from Atlanta over a new voting law and relocate the game to Colorado, which has some similar and even more restrictive voting laws. On Friday, MLB commissioner Rob Manfred said in a statement that after “thoughtful conversations with Clubs, former and current players, the Players Association, and The Players Alliance” he had decided that the “best way to demonstrate our values as a sport is by relocating this year’s All-Star Game and MLB Draft.” Manfred said MLB “fundamentally supports voting rights for all Americans and opposes restrictions to the ballot box.” According to the Associated Press, the MLB plans to move the game to Denver’s Coors Field. “Georgia has 17 days of in-person early voting including two optional Sundays, Colorado has 15,” Kemp said in an appearance on Fox News. “So what I’m being told, they also have a photo ID requirement. So it doesn’t make a whole lot of sense to me.” While Georgia requires identification for all in-person and absentee voting, Colorado law requires identification for in-person voting and first-time mail-in voters may be required to include a copy of their ID with their ballot. After first-time mail-in votes, Colorado uses signature matching for absentee ballots. Georgia voters without ID can use the last four digits of their social security number, a utility bill, bank statement, government check, paycheck, or another government document with their name and address on it, according to Secretary of State Brad Raffensperger’s office. Colorado automatically sends absentee ballots to all registered voters; Georgia sends the ballots only upon request in order to prevent sending ballots to the wrong address or to those no longer eligible to vote. Kemp also called President Biden’s appearance at the NCAA championship game in Indiana “so hypocritical” as the governor said the state is “the birthplace for the photo ID requirement.” MLB moved the All-Star game after Biden told ESPN that he would “strongly support” moving the July 13 game because of the law he described as “Jim Crow on steroids.”

  • I'm a part-time Amazon delivery driver. Here's how we cheat to get around the strict rules and constant monitoring.

    "We've created a workaround to game the system," says one Amazon driver, who eats lunch while driving and has had to pee in water bottles.

  • Former Trump staffers are facing a 'job desert' in Washington after the Capitol siege

    Armstrong Williams, a Trump world insider, told The Post that he's seen "many, many people" lose job offers following the Capitol riot.

  • Joss Whedon threatened to harm Gal Gadot's career if she didn't say the lines he wrote for 'Justice League,' report says

    The Hollywood Reporter's sources say Whedon also made disparaging comments about "Wonder Woman" director Patty Jenkins.

  • Pfizer halts shipment of 700,000 COVID vaccines to Israel after the country reportedly failed to make payment

    The Jerusalem Post reported Pfizer halted a shipment of 700,000 COVID vaccine doses after Israel failed to pay for its most recent shipment of 2.5 million doses.

  • Senate Dems Can Bypass GOP Filibuster on Two More Bills, Parliamentarian Rules

    The Senate parliamentarian has ruled that Democrats can pass two more pieces of legislation via budget reconciliation procedures, bypassing a potential filibuster by Republicans. The ruling allows Democrats to pass two bills with a simple majority instead of the usual 60-vote threshold required in the Senate. Democrats plan to use the budget reconciliation process to approve the Biden administration’s infrastructure plan, which is split into two bills. The process was previously used to pass Democrats’ coronavirus relief bill. A spokesman for Senate Majority Leader Chuck Schumer (D., N.Y.) announced the parliamentarian’s decision on Monday evening. “The Parliamentarian has advised that a revised budget resolution may contain budget reconciliation instructions,” the spokesman said in a statement. “This confirms the Leader’s interpretation of the Budget Act and allows Democrats additional tools to improve the lives of Americans if Republican obstruction continues.” The Senate is divided 50-50 between Democrats and Republicans, with Vice President Kamala Harris giving Democrats a slim majority in the chamber. Minority Leader Mitch McConnell (R., Ky.) told reporters on Thursday that Republicans will not support the infrastructure plan, which is projected to cost over $2 trillion and seeks to raise taxes. “My view of infrastructure is that we ought to build that which we can afford and not either whack the economy with major tax increases or run up the national debt even more,” McConnell told reporters. Senator Joe Manchin of West Virginia, a moderate Democrat, said on Monday that he would not support the plan as written. “As the bill exists today, it needs to be changed,” Manchin told West Virginia’s Metro News. While the current bill envisions raising the corporate tax rate to 28 percent, Manchin said he would not support a tax rate above 25 percent.

  • Carolina Panthers’ trade for QB Sam Darnold is so weird that it will actually work

    The Panthers traded three draft picks for New York Jets quarterback Sam Darnold on Monday. It was worth it.

  • Spirit Airlines is defending its decision to de-board an entire flight after it says a family refused to wear masks

    In a video that has been widely shared, a couple is seen being asked to leave the plane while their daughter is eating without a mask.

  • Former Trump official Lynne Patton was penalized for violating the Hatch Act

    In a settlement announced on Tuesday, Patton accepted a 48-month ban from federal employment and was ordered to pay a $1,000 fine.

  • Jerry Jones and the Dallas Cowboys might wind up getting exactly what they paid for

    There could be some concern that the team’s eight unrestricted free agents may be too much of a bargain at just a combined $12.712 million in 2021.

  • Mayor demands to know how teen killed by Chicago cop got gun

    Mayor Lori Lightfoot said Monday that she has directed the Chicago Police Department to capture and bring to justice whoever gave a 13-year-old boy the handgun he was carrying last week when he was fatally shot by a police officer. Adam Toledo was shot in the chest after he ran from officers in the Little Village neighborhood shortly before 3 a.m. on March 29. “We will find the person who put the gun in Adam's hand,” Lightfoot said during a news conference in the neighborhood on the West Side.

  • Southwest pilot accused of exposing his genitals during a flight from Philadelphia to Orlando

    The pilot "intentionally committed an act of lewd, indecent and obscene exposure of his genitals in a public place," the Department of Justice alleged.