ETF’s have become a very popular way to hedge or put on exposure in a sector, asset class or region. There are 69 active ETF’s in the U.S. Government fixed income asset class, but only sixteen have AUM’s over $1 billion and only one has short interest over $1 billion. Following is a recap of the larger US Govt ETF’s by duration. (See Chart 1)
It is interesting to notice that although investors are getting long US treasury exposure via ETF’s throughout the entire duration curve, short sellers are predominantly in the long term end of the curve with $4 out of every $5 shorted via ETF in the 20+ year duration bucket. (See Chart 2)
Long holders have been taking on $5.3 billion more US Govt ETF exposure in 2016, with a slight pullback, slightly over 1%, in the 3rd quarter as the probability of Fed Funds rate change in September increased from 2% on July 1st to 22% today. Short sellers haven’t changed their allocations much either, lowering their short exposure by only 2% in the 3rd quarter.
For more information on the above analysis, please contact:
Ihor Dusaniwsky, Head of Research, S3 Partners, LLC Ihor.Dusaniwsky@S3Partners.net
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