October has started with a sharp downturn in the bond market, causing yields to rise and a widely recognized fixed-income ETF to reach its lowest closing price since the early days of the 2007-2009 financial crisis.
TLT ETF Plummeting
The iShares 20+ Year Bond ETF, commonly referred to as TLT, experienced a 1.7% drop to $87.13 per share on Monday afternoon. This puts it on track for its lowest close since August 20, 2007, as reported by Dow Jones Market Data. Throughout this year, the ETF has seen a total decline of approximately 13%.
Temporary Relief Last Week
The TLT ETF reached its lowest point since 2008 last week, but experienced a brief respite as Treasury rates rebounded ahead of the weekend. This came as concerns grew regarding the possibility of a U.S. government shutdown.
Averted Shutdown, Elevated Interest Rates
However, over the weekend, lawmakers approved a stopgap funding bill, effectively averting a shutdown. As a result, investors have redirected their attention back to the expectation that the Federal Reserve will maintain high interest rates for an extended period. Additionally, there may be pressure for further policy tightening as part of the Fed’s efforts to reduce inflation.
Bond Prices and Yields
It’s important to note that bond prices and yields move in opposite directions. The 10-year Treasury note yield (BX:TMUBMUSD10Y) has surged over 10 points, trading above 4.67%. This is the highest yield since October 2007. The rising yields have had a negative impact on stock prices, causing the Dow Jones Industrial Average to fall around 175 points (0.5%), while the S&P 500 declined by 0.4%. Stocks are recovering from a losing quarter, and the S&P 500 suffered its largest monthly loss of 2023 in September.
Importance of Bond ETFs
Bond ETFs are significant because they provide individual investors with a popular means of exposure to the U.S. fixed-income market.
AGG ETF Also Affected
Similarly, the widely followed iShares Core U.S. Aggregate Bond ETF (AGG) is facing increased selling pressure, potentially leading to its lowest close since 2008. The AGG ETF tracks the U.S. Bloomberg Aggregate Bond Index, which serves as the primary performance gauge for investment-grade bonds. Investors in fixed-income strive to exceed the index’s returns each year.
—Joy Wiltermuth contributed.