LBND & SBND: Turning Treasury Bonds Into Unsecured Debt

Invesco PowerShares was all set to launch a pair of new ETNs back on June 15.  When I looked into them, I found they were going to be 3x leveraged Treasury ETNs.  My initial thought was these are ridiculous products.  Who, in their right mind, would want to buy “guaranteed by the U.S. government” Treasury securities packaged as “unsecured debt obligations” of a foreign company?  The launched was pulled at the last minute.  Ah, “cooler heads have prevailed” I thought.

Turns out the launch wasn’t scrapped entirely as it should have been, it was just delayed a little.  Yesterday (6/29/10), they became a reality.  Two new ETNs were listed on the NYSE:

• PowerShares DB 3x Long 25+ Year Treasury Bond ETN (LBND)
• PowerShares DB 3x Short 25+ Year Treasury Bond ETN (SBND)

As exchange-trade notes, these two products are unsecured debt obligations of Deutsche Bank, with a maturity date of 5/31/2040.

Each ETN will have its 3x leverage reset monthly and have an expense ratio (investor fee) of 0.95%.  Additional information can be found at the new PowerShares Fixed Income Portal and in the combined product fact sheet (pdf). 

In their first day of trading there were no takers.  Combined volume for the two ETNs was zero.  Someone at PowerShares obviously believes in them, perhaps thinking the monthly leverage reset feature will be embraced.  However, that data point does not receive any play in the marketing literature.  Meanwhile, if 3x leveraged long-term Treasurys fit into your portfolio, then take a look at the “secured” 3x Treasury ETFs with daily reset available from Direxion. 

Disclosure covering writer, editor, and publisher:  No positions in any of the securities mentioned.  No positions in any of the companies or ETF sponsors mentioned.  No income, revenue, or other compensation (either directly or indirectly) received from, or on behalf of, any of the companies or ETF sponsors mentioned.