The U.S. Treasury selloff continues! The largest long-term Treasury ETF in the U.S. has fallen to its lowest level in more than 20 years, halving from its 2020 peak.

The U.S. long-term Treasury market continues to face pressure, with the largest exchange-traded fund (ETF) tracking long-term U.S. government bonds falling on Wednesday to its lowest closing level since June 2004. As strong economic data further reinforced market expectations that the Federal Reserve will continue tightening monetary policy, the multi-year bond market selloff has yet to show clear signs of easing. BlackRock, Inc.'s iShares 20+ Year Treasury Bond ETF (TLT.US) fell 1.6% on Wednesday to close at $80.46, the lowest closing price since the fund's inception. The latest data released that day showed that U.S. economic activity remained strong, triggering a further decline in U.S. Treasury prices. Since its 2020 peak, TLT has fallen by more than 50% cumulatively. After the outbreak of the COVID-19 pandemic in 2020, the Federal Reserve sharply cut interest rates to near zero to support the economy, causing Treasury prices to surge and TLT to rise to a high. Since then, as the monetary policy environment reversed, long-term Treasuries entered a sustained adjustment. TLT was launched in 2002 and currently has about $45 billion in assets. In recent years, many investors have used the fund as a tool to bet on a bottom in the U.S. bond market and future declines in interest rates. However, continued rate hikes, sticky inflation, and issuance pressure from the growing scale of U.S. government debt have repeatedly weighed on long-term Treasury prices. Todd Sohn, chief ETF strategist at Baird Strategas, said the market has undergone a massive regime shift since 2020, and investors have realized that even if a product has "U.S. Treasury" in its name, that does not mean it is low-risk. He noted that investors need to understand the interest rate risk brought by duration, and that TLT itself is a relatively volatile investment vehicle. Behind the latest round of bond market selling is rising market expectations that the Federal Reserve will tighten monetary policy further in the coming months. Fed officials last week raised the overnight borrowing rate for the first time since 2023. The recent rise in short-term Treasury yields has been especially pronounced, but because long-term bonds are more sensitive to interest rate changes, the impact of rising rates on TLT has been more severe. The performance of long-term Treasuries also reflects the broader predicament facing fixed-income investors. Rising rates and inflation erode the real value of future cash flows from fixed-income assets, pushing bond prices down and yields up, and bonds with longer duration typically suffer larger price shocks. Still, long-term U.S. Treasuries continue to pay coupons, which partly buffers the losses caused by falling bond prices. Including dividend income, TLT's total return so far this year is negative 4.8%, better than the 7.7% decline in the fund's share price over the same period. Even so, TLT's performance still lags notably behind shorter-duration U.S. Treasury products. So far this year, BlackRock, Inc.'s ETF tracking 7- to 10-year U.S. Treasuries has posted a total return of negative 3.7%, while products investing in 0- to 3-month U.S. Treasuries have delivered a positive total return of 2.6%, highlighting the performance divergence among bonds of different durations in the current high-rate environment. Eric Balchunas, an ETF analyst at Bloomberg Intelligence, described TLT as a "very lethal" trade in the bond market, underscoring the enormous risks of betting on a rebound in long-term Treasuries. Balchunas said: "Betting on TLT is not easy. It is a very difficult trade to make."