This 2X ETF Was Made for Higher Interest Rates. Should You Buy Before the Next Fed Hike?
The Fed raised rates and TBT barely flinched, which raises an uncomfortable question for anyone betting on more hikes: being right about the direction still might not make you money.
The Federal Reserve raised its policy rate on September 17, and the fund built to profit from that decision barely moved. ProShares UltraShort 20+ Year Treasury (NYSEARCA:TBT) closed at $38.62 on September 21, essentially flat across the four sessions after the hike. That is the puzzle worth solving before you buy this ETF ahead of the next meeting.
TBT is the bond market’s most aggressive mainstream short, offering two times the daily inverse return of long-dated Treasuries. It has gained 16% over one year as yields backed up. But a correct rate call does not guarantee profit. The fund’s daily reset can turn a choppy path into a loss even when direction proves right over weeks or months. If you are considering TBT because you think the Fed has more work to do, the mechanics matter as much as the macro call.
What The Fed Did And What Comes Next
The Federal Open Market Committee lifted the federal funds target upper bound to 4% on September 17, a quarter-point move from 3.75%. Chairman Kevin Warsh told reporters that inflation had been “too high for too long.”
Markets are pricing what comes next. Barclays sees the second hike arriving in December. TD Securities expects moves in October and January. Polymarket did not publish a clean December-hike contract at the time of writing, so market-implied odds for a December hike were unavailable.
Long-end yields responded. The 10-year Treasury reached 5% on September 18, its highest reading in the trailing year, up from a 4% low set on February 27.
Why Long Bonds Move Hardest When Rates Rise
TBT delivers two times the daily inverse of the ICE U.S. Treasury 20+ Year Bond Index. Long-dated Treasuries carry the most duration, so a small shift in yield produces a much larger price move than in shorter bonds.
With 20-year yields at 5.3% and 30-year yields at 5.3% on September 21, prices on outstanding long bonds fell, and TBT amplified the move. Over five years, the fund is up 169% as yields climbed.
The ETF holds mostly cash equivalents. About 72% sits in the ProShares GENIUS Money Market ETF, with short-duration exposure delivered through Treasury futures and total return swaps. Net assets stand near $333 million.
Daily Reset Is A Quiet Tax
From September 17 through September 21, TBT gained 0.08% but lost 2% over the week. Direction was right, path was choppy, and holders got almost nothing to show for it.
The mechanism is the daily reset. TBT rebalances its two-times inverse exposure every trading day, so when prices oscillate, the compounding math grinds against you. A day up 2% followed by a day down 2% leaves a leveraged fund lower than where it started.
The 10-year minus 2-year spread compressed from 0.50% a month ago to 0.20% on September 21, a sign long yields have been chopping rather than trending. That is precisely the environment where TBT’s structure hurts most.
Sizing And Monitoring A Position
TBT is a daily-objective product. The prospectus language and the performance record both point the same way: this is a trading vehicle built for short-term positioning.
If you want a directional short on long Treasuries without leverage, ProShares Short 20+ Year Treasury (NYSEARCA:TBF) delivers one times the inverse. If you want to reduce duration in a bond portfolio, underweighting iShares 20+ Year Treasury Bond ETF (NYSEARCA:TLT) does the job with no reset drag.
Bull And Bear Case For TBT ETF
The bull case is straightforward. If Barclays or TD Securities is right and the Fed keeps tightening into 2027, long yields likely push through the 5.3% seen on the 20-year, and TBT captures two times the resulting price decline. In a trending yield backup, no retail vehicle delivers more short-duration punch.
The bear case is what September showed. A correct macro call produced no profit because the path was choppy, and a roughly 1% expense ratio typical of leveraged ProShares funds compounds the drag.
The deciding variable is path. If yields grind higher in a straight line, TBT works. If they zigzag their way up, the reset eats the gain.
This fund fits a short-term tactical trader with a defined view on the next Fed move and a plan to exit. Retirees, income investors, and anyone wanting a plain bond hedge should look elsewhere.
Contact [email protected] for any questions or corrections.
Omor Ibne Ehsan is a writer at 24/7 Wall St. He is a self-taught investor with a focus on growth, cyclical, and dividend equities that have strong fundamentals, value, and long-term potential. He also has an interest in high-risk, high-reward investments such as penny stocks.
