The wave of US Treasury sell-off continues! The largest long-term US Treasury ETF falls to its lowest level in over 20 years, dropping by half from its 2020 peak.

According to Jinse Finance APP, the U.S. long-term Treasury bond market continues to be under pressure, as the largest exchange-traded fund (ETF) tracking long-term U.S. Treasuries fell to its lowest closing level since June 2004 on Wednesday. The prolonged bond market sell-off shows no clear signs of easing, as strong economic data further fuels market expectations that the Federal Reserve will continue tightening monetary policy.

BlackRock’s iShares 20+ Year Treasury Bond ETF (TLT.US) dropped 1.6% on Wednesday, closing at $80.46, marking its lowest closing price since the fund's inception. The most recent data released that day showed that U.S. economic activity remains strong, triggering a further decline in U.S. Treasury prices.

Since its 2020 high, TLT’s cumulative decline has exceeded 50%. After the coronavirus pandemic outbreak in 2020, the Federal Reserve sharply lowered interest rates to near zero to support the economy, leading to a significant rise in U.S. Treasury prices and a surge in TLT. Since then, as the monetary policy environment reversed, long-term U.S. Treasuries have entered into a sustained adjustment.

TLT was established in 2002 and currently manages assets of approximately $45 billion. In recent years, many investors have used this fund as a tool to bet on the bottoming out of the U.S. bond market and a future decline in interest rates. However, continual rate hikes, stubborn inflation, and increased pressure from the expanding U.S. government debt issuance have consistently weighed down long-term Treasury prices.

Todd Sohn, Chief ETF Strategist at Baird Strategas, said that the market has experienced a huge institutional shift since 2020. Investors have realized that even if "U.S. Treasuries" appears in a product’s name, the risk is not necessarily very low. He pointed out that investors need to understand the interest rate risk brought by duration, and that TLT itself is a highly volatile investment tool.

The latest round of bond market sell-off is driven by rising expectations that the Federal Reserve will further tighten monetary policy in the coming months. Last week, Federal Reserve officials raised the overnight lending rate for the first time since 2023. Recently, the rise in short-term U.S. Treasury yields has been particularly evident, but since long-term bonds are more sensitive to interest rate changes, the impact of rising rates on TLT is even more pronounced.

The performance of long-term U.S. Treasuries also reflects the overall predicament faced by fixed income investors. Rising interest rates and inflation erode the real value of future cash flows from fixed income assets, driving down bond prices and pushing up yields, with longer-duration bonds typically suffering larger price shocks.

However, long-term U.S. Treasuries still pay coupons, which to some extent offsets the losses caused by the decline in bond prices. Including dividend income, TLT’s total return so far this year is negative 4.8%, better than the 7.7% drop in the fund’s share price over the same period.

Even so, TLT’s performance still lags significantly behind U.S. Treasury products with shorter maturities. So far this year, BlackRock’s ETF tracking 7- to 10-year U.S. Treasuries has had a total return of negative 3.7%, while products investing in 0- to 3-month U.S. Treasuries delivered a positive total return of 2.6%, highlighting the differences in performance among bonds of various durations in the current high-interest-rate environment.

Bloomberg Industry Research ETF Analyst Eric Balchunas described TLT as a "highly lethal" trade in the bond market, underscoring the enormous risks facing those betting on a long-term U.S. Treasury rebound. Balchunas said, "Betting on TLT is not easy—this is a very tough trade to make."