Industrial Forex: US bond yields skyrocketed, and the largest US bond ETF suffered a significant withdrawal

Investors are pulling money out of the largest ETF tracking U.S. Treasuries at the fastest pace since the outbreak of the epidemic.

The $39 billion iShares 20-year + Treasury ETF (TLT) saw more than $1.80 billion of outflows last week, the highest level since March 2020, according to data compiled by the agency. The ETF fell 1.2% last week, after falling more than 3% the previous week.

In the past month,Industrial foreign exchangeEconomists judgeSentiment towards long-dated Treasuries worsened as markets became increasingly confident that the Federal Reserve would keep interest rates high for an extended period to rein in still-high inflation.That sent the yield on the longest-dated US Treasury bond sharply higher, dampening demand for auctions of 30-year Treasuries last week.

Winnie Cisar, global head of credit strategy at CreditSights, said investors may be freeing up cash to exit products such as TLT as more supply of Treasuries looms as the US government deals with growing deficits.

"It could also be a delayed response to the bearish view on bonds, which picked up following Fitch's downgrade of the US, the higher-than-expected US bond refinancing and the BoJ announcement," Mr. Cisar said. "I also suspect that liquidity is generally low and seasonal factors are at play. We find that historically August, September and October tend to be seasonally high-yielding months (5-7 basis points higher on average)."

The yield on the 10-year Treasury rose to 4.209 per cent on Monday, its highest level since November 8. The yield on the inflation-protected 10-year Treasury rose to 1.827 per cent, its highest level since 2009. The sell-off over the past month has hit long-dated bonds harder than short-dated ones, steepening the still deeply inverted part of the yield curve again. Erik Nelson of Wells Fargo said on a television programme:

"I'm probably more concerned about yields re-testing the highs since last autumn than the downside risk to yields. I don't necessarily expect 50 basis points of upside, but I think carry trades and upside risk make us think it's not too tempting to go long right now."