A global sell-off in government bonds gripped markets Tuesday, sending borrowing costs to multi-decade highs as hopes for an end to the Middle East conflict quickly faded, as quoted on CNBC.
The latest pressure came after a window for a new U.S.-Iran deal closed without a breakthrough, reviving concerns over high oil price-led inflation and the potential for higher interest rates.
On Monday, U.S. President Donald Trump ruled out extending the ceasefire with Iran, while Tehran issued fresh threats of military escalation. Both sides have rejected further peace negotiations.
Strait Of Hormuz Fuels Inflation Fears
The effective closure of the strait during the nearly six-month conflict has pushed up the prices of energy and other key commodities. Oil prices extended their rally Tuesday. Investors are pricing in a prolonged closure of the Strait of Hormuz.
U.S. Treasury Yields Hit Multi-Year Highs
The yield on 30-year U.S. Treasurys rose nearly 2 basis points to 5.3275%, marking its highest level since 2002, as quoted on CNBC. The 20-year Treasury yield also reached a post-2006 high, while the benchmark 10-year Treasury yield climbed to 4.74%, its highest level since 2007.
Note that bond yields and prices move in opposite directions. iShares 20+ Year Treasury Bond ETF TLT is down 1.1% over the past one week.
Global Bonds Face Selling Pressure
Germany’s 10-year Bund yield reached a 15-year high, while France’s 10-year yield climbed to its highest level since 2008. Japan’s 10-year bond yield rose to 2.954%, surpassing the 40-year high recorded in the spring.
Yields also jumped across British, Italian, Swiss and Canadian government bonds, per the same CNBC article. iShares International Treasury Bond ETF IGOV is down 0.2% over the past week.
Higher Rates & Massive Government Borrowing Weigh On Bonds
Dan Coatsworth, head of markets at AJ Bell, noted that rising long-term bond yields are not driven solely by expectations of higher rates and inflation. Concerns about elevated government borrowing and the need for greater compensation to hold longer-dated bonds are also contributing to the sell-off, as quoted on CNBC.
ETFs to Play
Against this backdrop, below we highlight a few inverse treasury-based exchange-traded funds (ETFs).
ProShares UltraShort 20+ Year Treasury TBT – Up 2.5% past week
Direxion Daily 20+ Year Treasury Bear 3X ETF TMV – Up 3.4% past week
ProShares Short 20+ Year Treasury TBF – Up 1.1% past week
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report