Time for Inverse Bond ETFs as IMF Warns of Bond Market Risks?
The International Monetary Fund (IMF) has warned that government bond yields could spike sharply and disorderly as rising inflation, mounting public debt and growing AI-related borrowing strain financial markets, as quoted on CNBC.
Government bond yields across several advanced economies have climbed to multidecade highs amid higher energy costs linked to the Middle East conflict and expectations of tighter monetary policy.
In its latest Global Financial Stability Report, the IMF cautioned that elevated debt and refinancing risks leave sovereign bond markets increasingly vulnerable to fiscal and inflation shocks. Global public debt is also approaching its highest level since World War II and could soon exceed 100% of GDP.
Rising Yields Could Trigger Broader Market Losses
A sharp increase in yields could depress asset valuations by raising discount rates and reduce the value of government bonds used as collateral. Meanwhile, technology giants and AI companies are borrowing heavily to finance data centers, chips and other infrastructure (read: AI Debt Boom: ETF Areas to Play).
Hyperscalers’ share of global investment-grade bond issuance has risen to 10% from less than 1% in 2024, increasing competition with governments for investor capital, as mentioned in the same CNBC article.
Although AI borrowing is not the primary driver of rising yields, the IMF sees it as an extra source of pressure. The IMF separately flagged risks from circular financing arrangements between major technology companies and AI firms, per CNBC.
ETFs to Play
Against this backdrop, below we highlight a few inverse bond ETFs that have gained amid the bond market rout. Note that iShares 20+ Year Treasury Bond ETF TLT has lost about 10% over the past six months.
ProShares UltraShort 20+ Year Treasury TBT – Up 20.3% year to date; up 6.8% over the past month
The underlying ICE US Treasury 20+ Year Bond Index comprises of U.S. Treasury bonds with remaining maturities greater than twenty years. The fund charges 93 bps in fees and yields about 2.18% annually.
ProShares Short 20+ Year Treasury TBF – Up 10.3% year to date; up 3.0% over the past month
The underlying ICE U.S. Treasury 20+ Year Bond Index includes publicly- issued U.S. Treasury securities that have a remaining maturity greater than twenty years and have $300 million or more of outstanding face value, excluding amounts held by the Federal Reserve. The fund charges 95 bps in fees and yields about 2.21% annually.
ProShares UltraShort 7-10 Year Treasury PST – Up 14.0% year to date; up 2.8% over the past month