ProShares, the world’s biggest purveyor of leverage and inverse ETFs, rolled out the first inverse corporate bond ETF today, offering up another way to prepare for a bond market sell-off for the second time in a week.

The introduction of the ProShares Short Investment Grade Corporate (NYSEArca: IGS) comes on the heels of the ProShares Short High Yield ETF (NYSEArca: SJB). The Bethesda, Md.-based company made clear its new marketing push with advertisement on its website alerting investors to the possibility of a bond bubble and how its ETFs might help weather its bursting.

Comments over the weekend by a Federal Reserve official hinting at the end of the central bank’s ultra-low interest rate policies served as another reminder that higher interest rates might come to pass sooner than many think. Prices of existing bonds fall when rates rise, and price movements grow in magnitude the longer the maturity of the fixed-income instrument.

"For investors who believe that investment grade corporates could come under pressure, IGS can be used to help hedge against or to seek to benefit from potential declines," ProShares Chief Executive Michael Sapir said in a press release, noting corporate bonds might be pricey by historical standards.

“Since the financial crisis, investment grade corporate bond indexes have reached record highs, and credit spreads have tightened significantly,” Sapir said.

Additionally, ConvergEx Group, the New York-based technology and trading firm, stated in a research note early this month that flows into short bond ETFs have been strong in recent weeks, suggesting investors could be preparing for a sell-off.

ProShares already sponsors the world’s biggest inverse exchange-traded bond fund, the UltraShort 20+ Year Treasury ETF (NYSEArca: TBT). The fund, which offers double the inverse of the daily returns of its index, has gathered almost $6 billion in assets since its launch in April 2008. With today’s launch of IGS, ProShare now offers six inverse bond ETFs.

Its new inverse corporate bond ETF, IGS, has an annual expense ratio of 0.95 percent, like all ProShares products.

LQD In Reverse?

IGS is based on the same index as the popular $13 billion iShares iBoxx $ Investment Grade Corporate Bond ETF (NYSEArca: LQD), which invites questions as to why investors wouldn’t just short LQD instead of buying IGS.

Firstly, LQD’s annual expense ratio of 0.15 percent is considerably cheaper than IGS’s 0.95 percent, though the costs of borrowing LQD shares to short them could offset that price advantage.

Moreover, LQD’s shares on the secondary market might not always be available for borrowing and shorting, which would make establishing, let alone maintaining, a short position in LQD difficult.

Also, plenty of accounts prohibit short selling, but do allow ownership of inverse funds, essentially precluding expressing bond market bearishness with LQD.

Even for those investors who are able to short LQD, the effort required to manage and maintain short positions requires logistical attention that might make simply buying an inverse ETF like IGS the better choice.

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