Investing
The Mounting Losses in Bond Long-Term Funds, Adding Injury on Top of Injury
Published:
Last Updated:
The US Treasury 30-year bond, the so-called Long Bond, is proving to be a widow-maker to those who bought a couple of months ago. Most investors did not want to hear that a mere 1% rise in interest rates across the board could wipe out 15% or more of the face value of their investment. After all, you never lose a cent if you don’t sell a government bond. For those who are in long-term bond funds, they are not going to be happy when they see their fund values because long-term interest rates have risen 70 basis points in less than two-months. We cannot say that this is insult on top of injury. After all, we have been warning readers not to be “bond complacent” since December.
On May 2, the yield on the 30-year Treasury was 2.82%. On Thursday June 20 it is 3.52%. The ProShares UltraShort 20+ Year Treasury (NYSE: TBT) exchange-traded product hit a new 52-week high of $73.99 as it is double-short the Long-Term Treasury market. This has risen literally 25% since the start of May.
Now to show just how bad the losses are in long bonds… The iShares Barclays 20+ Year Treasury Bond (NYSE: TLT) exchange-traded product is down right at $110 from its 52-week high of $132.21, for a loss of almost 17%.
The carnage is being felt in emerging market bonds as well. The iShares JPMorgan USD Emerging Markets Bond (NYSE: EMB) exchange-traded product is down over 3.5% at $106.40 today alone. That is down by 14.5% from its 52-week high of $124.43.
No one wanted to believe that the value of bonds was ever going to crater, and no one wanted to believe that when interest rates start to really rise they would be like a horse that broke free from a carriage. Sadly, the people wasting time checking what their buddies are doing on Facebook won’t understand that this is real.
If you want a lesson about how far and fast rates can rise, this feels like 1994 all over again. The difference is that long-term interest rates were much higher then and the long bond rate went from roughly 6.25% up to 8% in that year.
Read Also: 4 Stocks Investors Will Look At After The Correction
Choosing the right (or wrong) time to claim Social Security can dramatically change your retirement. So, before making one of the biggest decisions of your financial life, it’s a smart idea to get an extra set of eyes on your complete financial situation.
A financial advisor can help you decide the right Social Security option for you and your family. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you.
Click here to match with up to 3 financial pros who would be excited to help you optimize your Social Security outcomes.
Have questions about retirement or personal finance? Email us at [email protected]!
By emailing your questions to 24/7 Wall St., you agree to have them published anonymously on a673b.bigscoots-temp.com.
By submitting your story, you understand and agree that we may use your story, or versions of it, in all media and platforms, including via third parties.
Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.