(Bloomberg) — Investors are bailing out of the largest exchange-traded fund dedicated to Treasury bonds at the fastest pace since markets were hit during the early months of the pandemic.
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More than $1.8 billion exited the $39 billion iShares 20+ Year Treasury Bond ETF (TLT Index) last week, the most since March 2020, according to data compiled by Bloomberg. The fund’s price fell more than 3% in the previous week and another 1.2% in the five-day period ending Friday.
Sentiment towards long-term Treasuries has soured over the past month amid growing conviction that the Federal Reserve will keep interest rates at high levels for an extended period to quell inflation that remains flat. This sent longer-maturity US debt yields rising sharply, dampening demand on last week’s sale of 30-year Treasury notes.
With oversupply on the way as the government grapples with a growing deficit, investors will likely free up funds and pull out of products like TLT, according to Winnie Cesar, global head of credit strategy at CreditSights.
“It could also be a delayed reaction/acceptance to a bearish yield view that has been reinforced after a combination of Fitch’s rating downgrade, higher-than-expected Treasuries recovery and BoJ announcements,” Cesar said. “I also suspect that light liquidity in general and seasonality plays a role; we’ve found historically that August, September and October tend to be months with a higher seasonal yield (5-7 basis points on average).”
The 10- and 30-year Treasury yields are hovering near their highest levels since November. Last month’s sell-off caused more criticism of long-term debt than shorter-term maturities, re-sloping still-deeply inverted segments of the yield curve.
“I’m probably still more concerned about retesting those highs from last fall than I am about downside risks here for yields,” Wells Fargo’s Eric Nelson told Real Yield on Bloomberg TV. “I don’t necessarily expect 50 basis points of upside here, but I think the carry and rally risks here make it very unattractive, in our opinion, to buy now.”
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