Investors Dump Long-Dated Treasury ETF At Record Pace Ahead Of Trump's White House Return

Investors dumped a popular long-dated Treasury ETF at a record pace in December, fleeing the bond market as surging yields and fiscal uncertainty cast a shadow ahead of President-elect Donald Trump's return to the White House.

The iShares 20+ Year Treasury Bond ETF TLT, the largest Treasury-focused exchange-traded fund with $50 billion in assets under management, recorded $5.5 billion in outflows last month.

This marks the fund's largest single-month outflows in its history, surpassing the $4 billion withdrawn during the pandemic-driven turmoil in March 2020.

On the performance front, the fund tumbled by 7.1% in December, recording the worst drop since September 2023.

Chart: TLT ETF Witnessed Record Monthly Outflows In December

Yields Soar As Trump Policies Ignite Inflation Risks

Yields on 30-year Treasury bonds climbed sharply, gaining more than 40 basis points in December to close the year at 4.80%. That's the highest level in over a year, driven by concerns about rising inflation and shifting monetary policy.

The Federal Reserve, which delivered a 25-basis-point interest rate cut in December, sounded hawkish in its accompanying guidance.

Officials signaled fewer rate cuts in 2025 than markets had expected and raised inflation forecasts to reflect upcoming administration policies.

“The Bond Vigilantes are sending a loud warning message,” said Ed Yardeni, president of Yardeni Research, in a recent note.

“They aren’t convinced Donald Trump, the new sheriff coming to town, will maintain fiscal law and order any better than the old sheriff. They are also losing their confidence in Jerome Powell, the deputy in charge of monetary law and order,” he added.

In a recent report, Bravos Research highlighted that the 10-year Treasury yield rocketed from 3.6% in September to 4.6% in late December, implying a 25% increase in just 100 trading sessions.

“Moves like this are rare and have massive implications for the stock market,” the Bravos Research Team wrote.

Trump's Policies Add To Market Jitters

Investor anxiety over Trump's incoming administration added another layer of complexity to the bond market.

Trump has floated the idea of scrapping the federal debt ceiling, a controversial move that could enable unchecked government borrowing and stoke inflationary pressures.

Such a policy would effectively remove a key restraint on federal deficits, raising alarm among bond investors already bracing for fiscal expansion.

"There's now more bad reasons for the rise in yields," Yardeni stated.

As the expert highlighted, while stronger-than-expected economic data in the second half of 2024 initially pushed bond yields higher, the recent decline in the Citigroup Economic Surprise Index has shifted focus to structural concerns, such as persistent inflation risks and growing deficits.

Investors are also bracing for potential trade turbulence, as Trump has pledged to impose a universal 10% tariff and hike tariffs on Chinese imports to 60%. These measures, if enacted, could exacerbate inflationary pressures and add fuel to the bond market’s recent turmoil.

Treasury Department Breach Highlights New Risks

Compounding the challenges in December, the U.S. Treasury Department confirmed it was the target of a Chinese state-sponsored cyberattack.

Hackers compromised a third-party vendor, BeyondTrust, and gained access to unclassified documents, according to a letter sent to lawmakers.

The major breach allowed hackers to override security protocols and access Treasury workstations via a stolen key.

The Treasury Department said it became aware of the attack on Dec. 8 and is working with the FBI and the Cybersecurity and Infrastructure Security Agency (CISA) to assess the damage.

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