NEW YORK, April 5 (Reuters) - Bond bears took a beating on Friday after a weak U.S. payroll report stunned Wall Street and sparked the biggest rally in U.S. Treasuries in more than 10 months.
Exchange-traded funds that bet on long-dated U.S. government debt prices to fall suffered their worst one-day loss since late May, while the 30-year Treasury bond booked its biggest one-day gain at the same time.
This reversal of fortune came a week after long-dated U.S. government bonds recorded their worst quarter in a year on the expectations the U.S. economy was gaining traction and the speculation that the Federal Reserve might slow or stop buying bonds to support the economic recovery before the end of year.
ETFs that bet on falling Treasuries prices on the other hand posted their biggest quarter gain in a year.
Optimism about the economy was put to test on Friday after the government reported U.S. hirings totaled only 88,000 in March, less half of the 200,000 forecast by economists.
"It caught a lot of people off-side and they are scrambling to get back into bonds," Bill Irving, portfolio manager at Fidelity Investments in Merrimack, New Hampshire, said of Friday's jobs data.
Among the biggest ETFs for bond bears, the Proshares Ultrashort 20-plus Year Treasury fund were down 4.04 percent from Thursday, bringing its weekly loss to 8.54 percent. The $3.2 billion fund rose 3.56 percent in the first quarter and attracted inflows of $209.2 million in the first quarter and another $38.4 million in the latest week, according to data from Thomson Reuters' Lipper unit.
This type of leveraged ETF can pay handsomely because its gains double the daily price of long-dated U.S. Treasuries as tracked by a Barclays index. But it is risky because its losses double the price rise in long-dated Treasuries prices.
Market professionals advise investors against holding such leveraged ETFs for any length of time because of their extreme volatility and tendency toward exaggerated losses when the market moves against the fund's imbedded bet.
The Proshares Ultrapro Short 20-plus Year Treasury ETF is even riskier because its gains and losses are triple the daily price moves of long-dated Treasuries.
On Friday, the Ultrapro fund fell 6.24 percent on Friday, bringing its weekly loss to 12.91 percent. This ETF rose 5.36 percent in the first quarter.
Far smaller than the TBT, the TTT launched in March 2012 and has just $42.3 million in assets, according to Lipper. It has seen net inflows each month since launching, including a record $7.5 million last month, even though $10,000 reinvested in the fund since inception would have been worth just $7,125 at the end of February, the most recent data for which compound reinvestment data is available.
Still, that's more than would be left of $10,000 reinvested in the TBT since it launched in April 2008: Just $2,386 at of Feb. 28.