Bond Massacre: 30-Year Treasuries Crash 60% Since 2020, Wiping Out Two Decades of Gains
For two generations of savers, the 30-year Treasury was the steady part of a portfolio: dull, safe and reliably positive over time. That assumption no longer holds. BofA Global Investment Strategy, using Bloomberg data, says the 30-year Treasury price return…
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For two generations of savers, the 30-year Treasury was the steady part of a portfolio: dull, safe and reliably positive over time. That assumption no longer holds. BofA Global Investment Strategy, using Bloomberg data, says the 30-year Treasury price return index has fallen 60% since 2020 to about 107, matching its lowest level in 2000. In six years, the index has erased nearly 20 years of gains.
The worst fall of the prior 40 years came during the 2008 financial crisis, at 35%. The current slide has gone well past that mark, and it is picking up speed. The 30-year yield closed at 5.56% on September 28, up from 5.27% on September 1. Bloomberg reported Tuesday that it is approaching its highest level since 2002.
How a Safe Asset Lost 60% of Its Value
The math is harsh for anyone who bought near the bottom of the rate cycle. According to BofA, the 30-year yield has rose 478 basis points from its intraday low of 0.71% in March 2020. A bond paying a 1% coupon is worth far less once new bonds pay more than 5%.
Most regular investors feel this through funds. The iShares 20+ Year Treasury Bond ETF (NASDAQ:TLT), a popular stand-in for long-term government debt, fell 44.04% on an adjusted basis from March 9, 2020 through September 28. It is down 7.49% this year and 5.26% in the past month alone. Over the same period, nominal U.S. GDP grew 63%.
The losers are the pension funds, insurers and retirees who bought long-dated bonds when rates sat near zero. New buyers come out ahead. On September 28, the 30-year Treasury Inflation-Protected Securities yield was 3.28%, a return above inflation locked in for anyone who holds to maturity.
Why Long Bonds Are Breaking Now
The main driver is supply. The economist Darrell Duffie argued on Bloomberg’s Odd Lots that 30-year yields above 5% reflect a supply-demand imbalance driven by massive government debt issuance. In his account, foreign central banks have stopped buying and domestic investors are demanding more yield. U.S. public debt outstanding passed a record $40 trillion in August.
Washington is also competing for buyers. Issuance of investment-grade corporate bonds is up 30% from a year ago at $1.5 trillion. Kansas City Fed President Jeffrey Schmid described “a competition between commercial and public credit”, driven partly by AI investment.
Inflation is adding pressure. Consumer prices rose 0.4% in August, and Fed minutes released in August showed many officials said rate hikes may be needed. Fed Chair Kevin Warsh has suggested that higher yields can do some of the Fed’s work by pushing up mortgage rates and slowing credit. The central bank shows little interest in rescuing the long end.
What to Watch Before Year End
The next jobs report is the first test. A strong number could push the 30-year yield to levels last seen in the early 2000s. The bigger signal is the Treasury’s next quarterly refunding announcement. The average maturity of U.S. debt is 71 months, near its 2023 high. If the Treasury shifts borrowing toward short-term bills, long bondholders get relief and the government takes on more refinancing risk. If it keeps selling long-dated debt into a market that already demands 5.6% on 20-year bonds, the losses can grow, and mortgage rates will rise with them.
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After two decades of patrolling the dark corners of suburbia as a police officer, Rich Duprey hung up his badge and gun to begin writing full time about stocks and investing. For the past 20 years, he’s been cruising the markets looking for companies to lock up as long-term holdings in a portfolio while writing extensively on the broad sectors of consumer goods, technology, and industrials. Because his experience isn’t from the typical financial analyst track, Rich is able to break down complex topics into understandable and useful action points for the average investor. His writings have appeared on The Motley Fool, InvestorPlace, Yahoo! Finance, Money Morning, and, of course, 24/7 Wall St. He has been featured in both U.S. and international publications, including MarketWatch, Financial Times, Forbes, Fast Company, and USA Today.
