Bond Carnage: Long-Term Treasury ETF Tumbles To Lowest Point In 16 Years

Long-dated Treasuries are experiencing one of the worst bear markets in their history, with more than half of their market value wiped out by the ferocity of inflation and interest rates since the onset of the COVID-19 pandemic.

The iShares 20+ Year Treasury Bond ETF TLT, often regarded as a gauge for the performance of the “Treasury duration,” representing the highly sensitive long-term segment of the yield curve, currently sits at its lowest levels since August 2007.

On Monday, the yield on a 30-year Treasury surged above 4.80%, perilously inching closer to the critical 5% threshold. Just a year ago, a 30-year Treasury yielded around 3.7%, while two years ago, it stood at 2%. This decline steepened further in March 2020 when it yielded a mere 1%.

The ongoing surge in yields has translated into a substantial erosion of market value for these long-duration assets.

Chart: Long-Term U.S. Treasuries Have Lost Half Of Their Value Since The Onset Of Covid-19

Investors are now demanding greater compensation to hold bonds, which exhibit stock-like volatility during periods marked by elevated inflation and central bank interest rate hikes.

At the September FOMC meeting, the Federal Reserve chose to leave rates unchanged within the 5.25%-5.50% range but refrained from definitively closing the door to further rate hikes, hinting at a preference for maintaining elevated rates for longer.

The long-term monthly chart shows that the next hurdle for the 30-year yield is the psychological threshold of 5%, followed by the July 2007 highs at 5.40%.

A further increase in the 30-year yield towards that level or higher could push the iShares 20+ Year Treasury Bond ETF to the $82.50 level, representing a 5% decline from current prices.