U.S. Treasury Bond ETFs Plunge to New Lows Amid Long-Term Yield Shock

U.S. Treasury ETFs Hit 52-Week Lows
Down 4-5% Over the Past Month; Poorest Performance Among Bond ETFs
30-Year Treasury Yields Reach 19-Year High
U.S. Treasury Weakness Expected to Continue for Now

Individual investors who invested in U.S. Treasury bonds amid expectations for interest rate cuts are growing increasingly concerned. Concerns over a potential delay in the Federal Reserve's pace of rate cuts, combined with a long-term Treasury yield shock triggered by the U.S. government's budget deficit, have caused major U.S. Treasury bond ETFs to uniformly fall to their 52-week lows.

According to ETF Check on September 2, a number of funds—including ACE US 10-Year Treasury Active, KODEX US 10-Year Treasury Active (H), KODEX US 10-Year Treasury Futures, TIGER US 10-Year Treasury Futures, RISE US 30-Year Treasury Covered Call (Synthetic), ACE US 30-Year Treasury Active, PLUS US Treasury 30-Year Active, and RISE US 30-Year Treasury Active—hit their 52-week lows the previous day.

U.S. long-term Treasury ETFs have declined by 4% to 5% over the past month, delivering the weakest returns among all bond ETFs.

On August 31 (local time), the yield on 10-year U.S. Treasuries surged above 4.75% during trading—the highest level since January 2025. The yield on 5-year Treasuries also rose to its highest point since early last year, and the 30-year Treasury yield climbed 5 basis points (1bp = 0.01 percentage point) to 5.26%. Previously, on August 18, the 30-year yield rose as high as 5.337%, marking a 19-year peak since 2007.

This spike in long-term Treasury yields has hammered the returns of related ETFs. Because bonds pay fixed interest, rising market rates decrease the appeal of existing bonds, driving down their prices. The longer the bond's maturity, the higher its price sensitivity (duration) to interest rate changes, resulting in a larger valuation loss as rates climb.

The sharp surge in long-term Treasury yields is primarily driven by the U.S. government's massive fiscal deficit and increased Treasury issuance. As the U.S. Treasury Department ramped up bond supply to finance the deficit, investors started demanding higher yields (term premium) for holding long-maturity bonds, further pushing down their prices.

Market observers say that to calm the long-term yield uptrend, supply constraints and restored fiscal credibility are necessary. Yeha Ahn, a research analyst at Kiwoom Securities, stated, "Long-term yields will be more strongly impacted by fiscal deficits, net Treasury issuance, and the term premium. The U.S. Treasury is projecting net marketable borrowing of 739 billion dollars for the third quarter and 628 billion dollars for the fourth quarter. For long-term yields to decline on a sustained basis, not only the end of the Fed's rate hikes but also limits on coupon bond (regular interest-paying Treasury) issuance and the restoration of fiscal credibility will be needed."

However, as long-term yields have already soared sharply, further increases are expected to be limited. Since the August Jackson Hole meeting, renewed caution about monetary tightening has caused short-term rates to rise faster than long-term rates, increasing pressure for "bear flattening" on the yield curve. Jaekyun Ahn, a research analyst at Korea Investment & Securities, noted, "Due to the U.S. Treasury's increased long-term Treasury buybacks, the term premium on 10-year Treasuries has dropped after peaking. However, the hawkish remarks from Fed Governor Kevin Warsh at Jackson Hole in August have boosted expectations for short-term rate hikes. Still, since expected short-term rates are already close to 4.00%, the further upside for the 10-year U.S. Treasury yield will likely be more limited than for shorter maturities." He added, "With interest rate volatility on the rise, medium-term maturities (1 to 7 years) are likely to remain relatively weak. As bear flattening pressures mount in the U.S. Treasury market ahead of September's Federal Open Market Committee (FOMC) meeting, investors may be better off staying on the sidelines rather than buying long-term Treasuries until the release of U.S. employment data later this week."

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