When it comes to the ProShares ETFs, most of the attention is devoted to the ones that track various stock-related indexes such as the Dow, NASDAQ, S&P 500, Russell 2000 as well as a number popular sector indexes such as financials, REITs, tech, etc. Lately, the ETFs that track oil are getting some action, too.

What many individual investors may be missing is that the bond market, in particular the Treasuries, is not doing especially well. And ProShares offers a way to take advantage.

Bond market fundamentals --

There are several reasons for the situation in the bond market.

The one that most investors are worrying about is inflation. Bonds typically decline in price as inflation increases or as the perception of impending inflation increases. This is because investors know that the typical Fed response to inflation is raising interest rates. This implies that bonds issued in the future will have higher yields than those currently being traded in the market. This expectation makes current bonds less valuable and tends to put pressure on bond prices.

Taking a long term view, interest rates, as represented by the target Fed funds rate, are currently at a fairly low level. It is not unreasonable to assume that, over time, there will be a reversion to mean; ie, rates will rise from here as part of the natural business cycle.

What is less often considered is the supply/demand dynamic in the Treasury market. The government is actively trying to provide support to the economy. This is taking the form of economic stimulus checks, bailouts for Fannie Mae and Freddie Mac, insuring home loans, etc. All of this takes money, lots of it, and the government raises money by selling bonds. Issuing large quantities of new bonds to support new government programs will increase supply and may well exceed demand.

To summarize the fundamental backdrop, bond prices are likely to drop due to creeping inflation, rising interest rates and a growing supply of bonds issued by the government.

Technical analysis --

Looking at the technical situation, we have the following chart of the iShares Lehman 20+ Year Treasury Bond Fund (TLT). You can see that the ETF's 50-day moving average has fallen below its 200-day moving average. The price of the ETF itself, despite a jump today, remains a penny less than the 50-day MA. This is a very "toppy" looking chart pattern.



Pulling back to include the period from 2002 to the present, we have this next chart. As you can see, there is quite a bit of cyclicality in this ETF's price action.