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Inverse bond funds - why the dismal performance?
Old 02-08-2005, 04:31 AM   #1
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Inverse bond funds - why the dismal performance?

Given all the talk I've heard in the last year about the "rising interest rate environment," I thought that inverse bond funds (which rise in value as interest rates rise, unlike bond funds) would be hot stuff. But instead, we've seen gains in ST/intermediate bond funds and the inverse funds have sucked it up. A few examples:

RRPIX ProFunds Rising Rates Opportunity Investor
RYJUX Rydex Juno Investor
PCDBX Potomac Contrabond Fund Inv

The chart trends on all of these are down, down, down. What gives? Is it because the Fed raised ST interest rates but LT rates haven't risen as expected and the yield curve has flattened? If LT rates ever start rising, I would expect these funds to show some gains, is that correct? Is there even any point to holding these funds, or would it be simplier/cheaper to simply short some LT bond ETFs as Brewer suggested in another thread?

Also, I wonder if JG could use one of these funds to help offset his LT bond exposure?

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Re: Inverse bond funds - why the dismal performanc
Old 02-08-2005, 05:03 AM   #2
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Re: Inverse bond funds - why the dismal performanc

I used RYJUX the last time I shorted the bond market. It creates a synthetic short on the 30 year treasury via futures. It would have done poorly lately because the long end of the curve has been dropping, thereby pushing up the value of the 30 year treasury. Since RYJUX is short the 30 year treasury, it lost as the bond rose. Simple as that.
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