The iShares 20+ Year Treasury Bond Fund (NYSEArca: TLT) traded lower again Monday after last week’s 5% sell-off as yields on the 10-year note broke through 2.6% for the first time since 2011.
TLT and other Treasury bond ETFs have fallen sharply since the Federal Reserve said it could start pulling back on monetary stimulus if the economy improves.
“Last week, notwithstanding a sharp market reaction, Ben Bernanke did not lay out a new path for monetary policy. Rather he illuminated the existing path for those too short-sighted to see it to this point,” said David Kelly, chief global strategist at JP Morgan Funds, in a weekly outlook.
“The truth is that with U.S. economy gradually improving and the long-term costs of a bloated balance sheet growing, the Fed has to begin to phase out the most extreme monetary stimulus in its history. This means that long-term interest rates need to rise. Having said this, the more important questions for investors this week are how far will rates need to rise and how quickly will they get there,” he added. “The bottom line is that, even after last week’s sharp increases, long-term bond yields are likely rise substantially further over the next year or two.”
TLT is down about 8% the past month.
iShares 20+ Year Treasury Bond Fund
Full disclosure: Tom Lydon’s clients own TLT.