Boost ETP has listed Europe’s first range of 3x short fixed income exchange-traded products (ETPs) on Borsa Italiana.
The new ETPs are:
Boost BTP 10Y 3x Short Daily ETP (3BTS)
Boost Bund 10Y 3x Short Daily ETP (3BUS)
Boost US Treasuries 10Y 3x Short Daily ETP (3TYS)
The new ETPs will track indices giving exposure to the returns from holding 10yr US Treasury, BTP 10Y (Italian Government) futures and 10yr Bund (German Government) futures.
With AUM of USD7.9 billion, S&L debt ETPs tracking US Treasuries represent the overwhelming majority of S&L debt ETPs globally. German and Italian government debt are the most popular S&L European debt ETPs, with USD1.1 billion and USD216 million in AUM as at 30 June 2014, respectively.
This year’s unwinding of QE in the US may have set a precedent for looming interest rate increases as the US economy continues to grow. Upbeat producer and consumer sentiment indicators for the US, combined with the Fed’s confident tone in justifying the trimming of QE by another USD10 billion per month, has driven S&L investors to cut their long positions in Treasuries. The strong US jobs numbers for June furthermore support the view that interest rate increases may come sooner rather than later.
A strong bearish conviction in US, Italian and German government debt by S&L investors is evident in the disproportionate allocation into short positions, which represent 90 per cent, 82 per cent and 97 per cent of AUM in S&L debt ETPs, respectively.
The three new fixed income ETPs are designed to return minus 3x the daily movement of the relevant benchmark index. For example, if the BNP Paribas Long Term BTP Future Index falls by one per cent on a day, then 3BTS will rise by three per cent on that day (less fees and adjustments). Conversely, if the BNP Paribas Long Term BTP Future Index rises by one per cent on a day, then 3BTS will fall by three per cent on that day.
This brings Boost ETP’s product range to a total of 75 listings on Borsa Italiana, the London Stock Exchange, and Xetra.
Hector McNeil, co-chief executive of Boost ETP, a WisdomTree Company, says: "We believe that 3x short fixed income ETPs are exciting additions to Italy’s ETP market and introduce investment products which investors currently demand, but have not been available until now. Given the persistence of low interest rates which cannot fall much further and which the market expects to begin increasing in the near term, Boost's 3x short ETPs should now give investors a valuable range of new tools which could enhance their investment returns or hedge against rising rates.
“The addition of sovereign fixed income 3x short ETPs further enhances Boost’s extensive multi asset ETP platform. Investors have had strong appetite for Boost’s equity and commodity offerings and have been requesting fixed income products."