Following poor performance in Q3, fixed income is struggling to start the new quarter. SImilar to Q3, the bulk of weakness is in long-duration bonds. This is evident with the iShares 20+ Year Bond ETF (TLT) which fell to its lowest levels since August 2007. Remarkably, TLT is now at levels prior to the entire bond bull market which began at the depths of the financial crisis as central banks embarked on more than a decade of ultra-easy policy to support the economy.

So far, TLT is down 13% year to date. It’s the largest fixed income ETF, and many investors’ preferred vehicle to get exposure to long-term Treasuries. There is some disagreement on the causes behind the move in long-term yields with some pointing to large amounts of Treasuries that will be auctioned off in the coming months to finance the federal government’s deficits. Others believe that the bond market is finally accepting the reality that inflation is now entrenched and that higher rates are here to stay. 

Some with a longer-term view don’t see much unusual about the breakout in long-term yields given that this tends to happen when central banks embark on tightening policy. As a result, we are seeing the curve un-invert as the spread in yields between short-duration and long-duration bonds continue to shrink.

Finsum: TLT is the most popular fixed income ETF. It’s now at its lowest levels since 2007 as long-term Treasury yields break out to new highs.