U.S. rate cut is imminent... long-term bonds can't smile

Korea Economic Daily

Summary

The long-term bond ETF TLT recorded only a 2%% return this year, and mid-term bond ETFs produced higher performance.
Over the past month, mid-term bonds have continued to deliver better performance than long-term bonds.
It was reported that concerns about U.S. fiscal deterioration and a government bond oversupply have weakened long-term bond investor sentiment.

ETF TLT, year-to-date return only 2%

U.S. mid- to long-term bond ETFs are posting higher returns than long-term bond ETFs. In a phase when expectations for a U.S. rate cut are rising, long-term bond yields are generally higher, but analysts say a yield inversion is occurring due to weak demand.

On the 28th, according to ETF.com, the iShares 7-10 Year U.S. Treasury (IEF) listed on the U.S. stock market recorded a year-to-date return of 6.18%. Over the same period, the iShares 10-20 Year U.S. Treasury (TLH) returned 3.67%, and the iShares 20+ Year U.S. Treasury (TLT) returned 2.21%. Shorter maturities had higher returns.

Performance over the past month showed a similar trend. In that period IEF returned 1.67%, TLH 1.16%, and TLT 0.63%, with mid-term bonds outperforming long-term bonds. This is interpreted as a result of decreased demand for long-term treasuries.

There is analysis that concerns over U.S. fiscal deterioration and an oversupply of government bonds have dampened investor sentiment for long-term bonds. At a $25 billion 30-year U.S. Treasury auction held on the 7th, the winning yield was 4.813% per annum, 0.02 percentage points higher than before the auction. The rise in the winning yield means demand was weak.

Reporter Maeng Jin-gyu maeng@hankyung.com