ProShares UltraShort Lehman 7-10 Year Treasury (PST)

What does PST actually do?

PST is a leveraged inverse ETF on the Lehman 7-10 Year Treasury Index. That means three things: it is inverse (it profits when Treasuries fall), it is leveraged (it amplifies the move), and it resets daily. When Treasury bond prices decline and yields rise, PST shares rise. When Treasury bonds rally and yields fall, PST shares fall. The fund aims to deliver about twice the inverse daily return of the underlying index—so if Treasuries fall 1 percent on a given day, PST aims to rise about 2 percent.

How does the daily reset mechanic work?

A leveraged inverse fund must rebalance every day to maintain its 2x inverse exposure. If Treasuries rise, the fund’s short position loses value, so it sells more Treasuries short to get back to 2x leverage. If Treasuries fall, it covers some shorts. This daily rebalancing is automatic, but it carries a cost: in choppy, sideways markets where bonds trade up and down without a clear direction, the fund slowly erodes in value as it buys high and sells low within each day. This phenomenon is called volatility decay, and it is the hidden tax on holding leveraged inverse products for longer than a few days or weeks.

Who should own this, and for how long?

PST is a tactical trade, not an investment. It suits investors who believe Treasury yields are about to rise significantly—who think the 7-10 year part of the curve will face selling pressure—and who want to profit from that move without shorting bonds directly. It could also serve as a hedge: if you own a long-duration bond position and want to protect it against rising rates, you might buy a small amount of PST to offset some losses when rates spike. But the hedge is active and temporary, not passive and permanent.

The critical rule is to hold PST only for days or a handful of weeks at most. Hold it for months, and volatility decay eats away your gains even if your directional bet was right. Hold it for years, and the decay becomes catastrophic. The fund’s own prospectus warns about this explicitly.

What are the real risks?

The obvious one is directional: if you buy PST and Treasury yields fall instead of rising, you lose money quickly. But the subtler risk is decay. If yields drift sideways—up one day, down the next—PST will suffer losses over the month even though the overall trend was up. That is simply the cost of daily rebalancing in a volatile market.

There is also reinvestment risk. A real short position on bonds would lock in borrowing costs, but PST does not work that way. It is a derivative on the index, and the precise costs of maintaining the 2x inverse exposure shift with market conditions.

How does PST trade and what does it cost?

PST is liquid and trades on an exchange like any ETF. The expense ratio is moderate relative to what you are getting—active daily rebalancing is not cheap—but it is not onerous. What matters more is the bid-ask spread: on most days, the spread is tight, and you can enter or exit quickly. On market stress days when Treasury volatility spikes, spreads widen, and the cost of trading balloons.

How do you research whether this is right for you?

Start by asking yourself a simple question: do you have a specific, time-bounded forecast about the direction of Treasury yields, and do you want to profit from it without shorting bonds directly? If the answer is no, PST is not the right instrument. If yes, read the prospectus to confirm the fund’s mechanics, check the current expense ratio, and then—critically—set a plan to exit. A profitable trade on PST is one you close out after days or weeks, not one you hold until the thesis is “definitely right.”

Never own PST passively “just in case” rates rise. That is how decay kills returns.