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Exchange-traded funds that invest in long-term Treasury bonds are dropping Thursday, as yields continued their march higher in the wake of the Federal Reserve’s meeting on monetary policy.
Shares of the Vanguard Long-Term Treasury ETF
VGLT
were down a sharp 2% on Thursday afternoon, while the iShares 20+ Year Treasury Bond ETF
TLT
sank 2.2%, according to FactSet data, at last check. The iShares 10-20 Year Treasury Bond ETF
TLH
was slumping 1.7% on Thursday afternoon.
Ten-year Treasury yields jumped after Fed Chair Jerome Powell held a press conference Wednesday on the central bank’s interest-rate-setting policy meeting, which ended with its summary of economic projections pointing to a potential rate hike later this year. Powell said at the briefing that the Fed’s monetary policy needs to stay restrictive to tame still high inflation.
“The Fed once again alerted the financial markets that the federal funds rate will remain restrictively aloft for longer than generally expected,” said Yardeni Research in a note Thursday.
Bond yields have skyrocketed since the Fed embarked in early 2022 on an aggressive campaign hiking its benchmark rate to bring surging inflation back down to its 2% target. The yield on the 10-year Treasury note
BX:TMUBMUSD10Y
was trading up about 10 basis points on Thursday afternoon at 4.47%, which is around levels seen in 2007, FactSet data show.
Treasurys with short-term maturities are faring better than long-term U.S. government bonds this year, including in Thursday afternoon trading.
For example, shares of the iShares 1-3 Year Treasury Bond ETF
SHY
were in positive territory on Thursday, edging up 0.1%, according to FactSet data, at last check. The fund has posted a 1.4% total return this year through Wednesday, outperforming the 4.5% loss for the iShares 20+ Year Treasury Bond ETF over the same period on a total return basis.
Read: BlackRock launches series of TIPS ETFs as Fed battles inflation
With the Fed fighting inflation this year with higher rates, the yield on ultra-short-term U.S. government debt has been attracting investors with yields of more than 5%. The yield on three-month Treasury bills
BX:TMUBMUSD03M
was trading at 5.47% on Thursday afternoon, FactSet data show.
Shares of the iShares 0-3 Month Treasury Bond ETF
SGOV
were up less than 0.1% in Thursday afternoon trading, after posting a total return of 3.6% this year through Wednesday.
Meanwhile, the jump in 10-year Treasury yields was weighing on the U.S. stock market. The Dow Jones Industrial Average
DJIA
was down 0.6% on Thursday afternoon, while the S&P 500
SPX
fell 1.2% and the Nasdaq Composite
COMP
dropped 1.4%, according to FactSet data, at last check.
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