Long-Dated Treasuries No Longer Considered a Safe Haven 

The past week was marked by a sudden and sharp spike in government bond yields following the release of stronger-than-expected retail sales data on October 17. Further compounding matters, Jerome Powell has suggested that above-average growth, or an excessively strong labour market, might require a further tightening of monetary policy.

The yield on the 10-year US Treasury hit 5% for the first time since July 2007, before closing at 4.93%, up 30 basis points for the week. The 20-year US Treasury yield touched 5.30%, while the yield for the 30-year bond spiked to 5.09%. These fluctuations have led investors to question whether long-dated treasuries still represent a safe haven given the dramatic flattening of the U.S. yield curve since the end of June, exposing holders of long-dated government bonds to significant losses.

The repercussions of these recent shifts have been felt across various segments of the bond market. Long-term government bonds dropped by 4.89%, while their corporate counterparts saw losses amounting to approximately 4.21%.

The Wilshire Bond Index wasn’t immune either, recording a loss of around 2.28% over the course of this week alone.

Such dynamic shifts have had a significant impact on ETFs focused primarily on longer maturities. Notably, iShares 20+ Year Treasury Bond ETF - managing more than $37 billion worth in assets – experienced a significant decline with losses amounting to 4.98%.