TLT Sees Inflows Even as Its Performance Plunges

The largest long-Treasury ETF, the iShares 20+ Year Treasury Bond ETF (TLT), continues to see inflows from investors even as the fund has dived to its lowest price since 2011.

The fund, which holds about $39 billion according to etf.com data, has seen roughly $15.6 billion in inflows year to date. Yet it has simultaneously dropped about 9% this year and 48% since its peak in August 2020

The ETF, which invests primarily in bonds with more than 20 years to maturity, is particularly sensitive to long-term interest rate movements. Investors bet for or against the fund based on their sentiments regarding eventual Fed rate cuts or an economic slowdown.

As investors foresee interest rates remaining high, yields have skyrocketed to their highest in years. The benchmark U.S. 10-Year Treasury note has hit 4.56%, a peak not seen since June 2007, while the yield rates on the 30-Year Treasury have reached $4.70%, its highest since December 2009.

As the prospect of the Federal Reserve keeping interest rates high pushes yields up, investors are reevaluating fixed-income strategies.

“TLT is plunging because market-based interest rates have been repricing upwards on the idea that the Fed will keep its benchmark federal funds rate ‘higher for longer’ to fight inflation,” etf.com analyst Sumit Roy said.

Bond ETFs Fall Amid Rising Rates

Fixed-income funds across the board have hit lows ever since the Federal Reserve decided to leave interest rates at their highest level in two decades. The iShares 7-10 Year Treasury Bond ETF (IEF) has reached a bottom for the year, down 4% year to date.

Yet despite TLT’s rocky performance, investors are still clamoring to buy into the 20+ year T[1]bond ETF. On Sept. 14, the fund saw $414 million in inflows in a single day and eight days later gained another $290 million. Then on Sept. 25, the ETF garnered $155 million, making its total net inflows for the month roughly $567 million, according to etf.com data.

In the past three months, the fund has gained about $4.3 billion. Inflows remain consistent because many investors are betting that T-bond yields have reached a peak; that equates to getting the fund at a discount before bond yields drop. If yields have crested, it makes sense to invest in funds such as TLT and catch them as rates fall.

Contact Lucy Brewster at [email protected].