New JPMorgan Inverse Treasury ETNs Provide Dual Reset Mechanisms

October 8, 2010 by  
Filed under Commentary, ETF IPOs (New ETFs), ETNs

JPMorgan Chase listed two new exchange-traded notes (ETNs) on October 5, 2010 providing leveraged inverse exposure to U.S. Treasury futures.  JPMorgan Quarterly Double Short US Long Bond Treasury Futures ETNs (DSTJ) and JPMorgan Quarterly Double Short US 10-Year Treasury Futures ETNs (DSXJ) employ dual leverage reset mechanisms with an objective of providing long-term leveraged exposure in a more controlled manner.

The ETNs attempt to achieve this objective by monitoring exposure daily.  If at anytime between two quarterly reset dates the exposure exceeds a 180-220% range, the ETNs will reset back to an initial exposure of 200% the next day.  Additionally, the ETNs will reset the exposure back to 200% on the last day of each calendar quarter.  Potential investors should be aware that this will not fully remove the effects of leverage reset compounding, and that over multiple reset periods, your inverse exposure may be greater in magnitude than 220% or less than 180%.  Path dependent performance is still a factor though its impact should be mitigated compared to a daily reset leveraged product.

JPMorgan Quarterly Double Short US Long Bond Treasury Futures ETNs (DSTJ) seeks to provide 200% inverse exposure to the NYSE US Long Bond Treasury Futures Index.  Additional information can be found in the DSTJ fact sheet (pdf) and the DSTJ overview page (note: as of the date of this publishing, the ticker symbol on the overview page is incorrectly stated as DTSJ).

JPMorgan Quarterly Double Short US 10-Year Treasury Futures ETNs (DSXJ) seeks to provide 200% inverse exposure to the NYSE US 10 Year Treasury Futures Index.  Additional information can be found in the DSXJ fact sheet (pdf) and the DSXJ overview page (note: as of the date of this publishing, the ticker symbol on the overview page is incorrectly stated as DTXJ).

Both ETNs are unsecured debt obligations of JP Morgan Chase & Co. and will have an investor fee (expense ratio) of 0.85%.  There are currently seven additional inverse bond ETFs and ETNs listed for trading.  The most popular is the ProShares UltraShort 20+ Year Treasury (TBT).

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.

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