US 10-Year, 30-Year Yields Hit Decade Highs, Shaking 5 Treasury ETFs

The Federal Reserve’s commitment to maintaining higher interest rates for longer has unleashed seismic tremors within the bond market, culminating in an explosive surge in yields across all maturity periods. Initially, the reverberations were absorbed by 2-year yields, a segment that had historically been swift to react to policy cues from Powell and the Fed.

But as investors adjust their interest rate projections, the intense surge in Treasury yields is now extending its reach to longer-term maturities.

At the latest FOMC meeting, the Fed left the rate unchanged in the 5.25%-5.50% range, but macroeconomic projections indicated a median preference for another rate hike in 2023, and trimmed the rate-cut scenario to only 50 basis point in 2024, down from a full percentage point in June’s projections.

Chart: 10-Year And 30-Year Treasury Yields Soar To Over A Decade High

Monday witnessed an astonishing milestone as the yield on the benchmark 10-year Treasury bond rocketed to over 4.50%, a threshold not seen since October 2007.

Simultaneously, the yields on 30-year Treasury securities scaled to 4.62%, marking their highest level since February 2011.

These dramatic increases are primarily driven by rising real rates, directly influenced by the Fed’s policy stance.

The ramifications of this towering escalation in long-term Treasury yields are far-reaching as they directly influence a slew of real economy products, including auto loans, credit cards and mortgage rates.

As these yields ascend, the cost of borrowing for both consumers and businesses ascends in tandem, potentially triggering a deceleration in economic growth.

Carnage Unleashed: Long-Term Treasury ETFs in Turmoil

Exchange-traded funds (ETFs) linked to long-term Treasuries are bearing the brunt of these yield surges.

The iShares 20+ Year Treasury Bond ETF TLT, the largest Treasury-related ETF with $38 billion in assets under management, experienced a 1.9% decline on Monday, reaching its lowest level in over a decade. This marks the ETF’s fifth consecutive week of losses, the worst losing streak in a year.

Similar declines have been observed in other longer-dated Treasury ETFs, including the SPDR Portfolio Long-Term Treasury ETF SPTL and the Vanguard Long-Term Treasury ETF VGLT, with the latter hitting its lowest level since inception.

The iShares 7-10 Year Treasury Bond ETF IEF fell by 0.5% Monday, reaching levels last seen in April 2011. Since its peak in 2020, the ETF has experienced a 25% decline.

The iShares 10-20 Year Treasury Bond ETF TLH was also strongly hit, down 1.6% on Monday and by a whopping 44% since March 2020.

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