Short US Treasuries Strategies and Risks

Short US Treasuries Strategies and Risks can be complex, but essentially involve betting against the US government's creditworthiness.

Investors who short US Treasuries are essentially betting that interest rates will rise, making existing bonds less valuable.

Shorting US Treasuries involves selling a security with the expectation of buying it back later at a lower price, in order to profit from the difference.

This strategy can be risky, as a sudden drop in interest rates can cause bond prices to rise, resulting in significant losses for the short seller.

Suggestion: Bkkt Short Interest

Shorting is a strategy where an investor believes prices will drop and profits from buying back their position at a lower price. To go short on actual bonds, an investor would need to locate an existing holder, borrow the bond, and sell it in the market.

Individual investors often don't have the ability to go short actual bonds due to the complexity and risk involved, such as the potential for large losses if the bond price increases instead of falling.

Fortunately, there are alternative ways for investors to gain short exposure to the bond market without selling short actual bonds, which can be a more accessible and manageable option.

Investing in short US Treasuries can provide a low-risk way to earn returns, with yields ranging from 1-5% per annum, as seen in the historical data of 1-3 month and 6-12 month T-bills.

Short US Treasuries offer liquidity, with the ability to sell them quickly and easily if needed, as mentioned in the section on "What are Short US Treasuries?" This can be beneficial for investors who need to access their funds quickly.

However, investing in short US Treasuries also comes with some risks, including inflation risk, where rising inflation can erode the purchasing power of the returns earned, as discussed in the section on "How Do Short US Treasuries Work?"

If this caught your attention, see: Us Treasury Bonds Rates Chart

Shorting Strategies can be a powerful tool for investors looking to profit from declining bond prices.

Derivatives, such as selling futures contracts, buying put options, or selling call options naked, can be used to gain short exposure to bond markets. However, these naked derivative positions can be very risky and require leverage.

Discover more: China Selling off Us Treasury Bonds

Individual investors can use inverse, or short ETFs, to short bonds. These securities trade on stock markets and can be bought and sold throughout the trading day in any typical brokerage account.

Inverse ETFs earn a positive return for every negative return of the underlying, meaning their price moves in the opposite direction of the underlying. By owning the short ETF, the investor is actually long those shares while having short exposure to the bond market.

Some short ETFs are also leveraged or geared, meaning they will return a multiple in the opposite direction of the underlying. For example, a 2x inverse ETF would return +2% for every -1% returned by the underlying.

Here are some popular short bond ETFs to consider:

Please consult a financial professional before considering this strategy, as short and leveraged ETFs are typically designed for short-term holding and can lose value over time due to attrition with the underlying holdings.

When you have a short US Treasury position, you can earn interest income through our standard tiered rates.

Short Credit Interest is paid based on these rates, which is a great way to earn some extra money on your investments.

Our tiered rates ensure that you earn a fair amount of interest on your position, making it a valuable benefit.

For another approach, see: Tbill Rates History

The cost to borrow is a crucial aspect to consider when engaging in certain financial activities. The borrow fee to short US Treasuries is based on our borrow cost and is subject to daily change.

If the Treasury is borrowed by us at the General Collateral rate, the client does not incur a borrow fee. This means that clients can avoid additional costs if the borrowed Treasuries are obtained at this rate.

The daily change in borrow cost can have a significant impact on the overall cost to borrow. This is why it's essential to stay informed about the current rates and any changes that may occur.

A daily change in borrow cost can result in a higher or lower borrow fee, depending on the circumstances.

Here's an interesting read: Us Libor Rate

Selling short US Treasuries incurs the same commission cost as buying US Treasuries.

Our commission schedule can be found on the company's website.

It's worth noting that commission costs can add up quickly, so it's essential to factor them into your investment strategy.

The commission schedule provides a clear breakdown of the costs associated with buying and selling US Treasuries.

Expand your knowledge: Buying I Bonds from Us Treasury

The Price Yield Calculator is a useful tool for investors to get an idea of an ETF's yield and duration for a given market price. It estimates the ACF Yield and spread to the relevant government reference security yield.

The ACF Yield is the discount rate that equates the ETF's aggregate cash flows to a given ETF price. This is calculated using the yield to worst methodology, which assumes a bond's cash flows occur at the call date or maturity, whichever results in the lowest yield.

For example, as of 01/03/25, the ACF Yield to Worst for a certain ETF is 4.31%. This means that the ETF's aggregate cash flows are discounted to a price of $110.16, resulting in a yield of 4.31%.

Recommended read: Vanguard Short-term Treasury Index Fund Etf Shares

The calculator also provides information on the Modified Duration, which is 0.26 years as of 01/03/25. This indicates how sensitive the ETF's price is to changes in interest rates.

Here's a brief overview of the types of investments that can be used with the Price Yield Calculator:

The short sale process for US Treasuries involves a few key steps. A short sale is essentially selling a security you don't own, which can be done with Treasuries.

In this case, you're selling a bond that you don't have, but you're expecting to buy it back later at a lower price to make a profit. To do this, you'll need to find a buyer for the bond and then buy it back later at a lower price.

Short selling US Treasuries requires a margin account and a broker who allows short selling.

For another approach, see: China Selling Us Treasuries 2023

Shorting US Treasuries can be a bit tricky, but it's doable. Many individual investors don't have the ability to go short actual bonds, but there are ways to gain short exposure to the bond market.

Fortunately, there are ETFs that can help you short US Treasuries. One such ETF is PST, which is supposed to return 2X the inverse of 10-year UST prices. However, as the author of the article section notes, PST doesn't always track the inverse of 10-year UST prices proportionally.

IEF, on the other hand, is an ETF that tracks prices on 10-year USTs, making it a better choice for those who want to short treasuries. The author found that IEF does a much better job of tracking 10-year UST prices than PST.

If you're looking for a way to short US Treasuries, consider using an ETF that tracks the inverse of 10-year UST prices. However, be aware that even these ETFs may not always perform as expected.

Here are some ways to short US Treasuries:

To cover a short sale, you'll need to buy back the security you originally sold short. This process is called a "buy to cover" order. The face value of the buy to cover order must be at least $250,000.

A buy to cover order can be accepted if the face value of the resulting position is greater than or equal to $250,000. This means that if you have a short position of $500,000, a buy to cover order of $250,000 or more will be accepted.

If you try to cover a short position with a buy to cover order that would result in a position of less than $250,000, the order will be rejected.

A buy to cover order can also be used to cover a short position exactly, which is known as a "flat" position. This occurs when the face value of the buy to cover order is equal to the face value of the short position, as in the case of a $500,000 short position covered with a $500,000 buy to cover order.

Here are some examples of buy to cover orders:

To understand the short sale process, let's break down some key examples. A short sale order that results in a short US Treasury position of less than $250,000 face value will not be accepted.

The face value of the resulting position is a crucial factor in determining whether a short sale order is accepted. If the face value of the resulting position is greater than or equal to $250,000, the order will be accepted.

Here are some specific examples to illustrate this point:

In general, a short sale order that increments the existing short position by more than $250,000 will be accepted. Conversely, an order that increments the existing short position by less than $250,000 will not be accepted.