Hedge Rising Interest Rates With TBT

ProShares UltraShort 20+ Year Treasury Fund (NYSE:TBT) — The economy appears to be improving, and “real” interest rates are on the rise with bond prices falling. On Wednesday, the benchmark 10-year note fell to its lowest price since October.

TBT seeks daily investment results that correspond to twice the inverse (opposite) of the daily performance of the Barclays Capital 20+ Year U.S. Treasury Bond Index. It invests in derivatives that ProShares Advisors believe should have daily returns similar to twice the inverse of the daily return of the index. It usually invests the rest of its assets in money-market instruments.

The fund is non-diversified and is not rated by Morningstar. Its net expense ratio is 0.93%.

If interest rates rise, bond prices should fall and TBT should rise, because it is designed to move in the opposite direction of the 20-Year U.S. Treasury Bond. So this trade is suggested as a long-term purchase and a hedge against rising interest rates.