Market Extra: Popular Treasury ETF sees record-setting trading frenzy as surging yields rattle bond market

Rising Treasury yields helped provoke a frenzy of trading in a popular bond exchange-traded fund this week as dip buyers battled with bears on the cusp of a critical threshold for markets.

Trading volume for the iShares 20+ Year Treasury ETF
TLT,
which is widely referred to by its ticker, TLT, hit a record high on Thursday as 87.7 million shares changed hands, according to Dow Jones Market Data.

Heavy trading continued on Friday, leaving open the possibility that the total number of shares traded this week could exceed the previous record from earlier this month, when more than 270.9 million shares moved during the week ended Oct. 6, Dow Jones data show. The ETF was launched back in 2002.

The ETF’s holdings are heavily weighted toward 30-year Treasury bonds, some of these issues have seen their value fall precipitously, and now trade at less than 50 cents on the dollar. As a result, the ETF’s price has declined 14.8% year-to-date through Thursday’s close, FactSet data show.

While some on Wall Street expect yields to keep on climbing, many have stepped up to buy bonds during the latest selloff. According to FactSet, TLT has seen roughly $18 billion of inflows so far this year, while more than $900 million flowed into the fund during the month of September, the fastest pace this year, according to FactSet data.

Yields on 30-year bonds hit their highest levels since July 2007 on Thursday, but they came in a bit on Friday across the Treasury curve, with the 30-year yield
BX:TMUBMUSD30Y
down 2.7 basis points to 5.079%, while 10-year note
BX:TMUBMUSD10Y
yields were off by 7.7 basis points at 4.908%.

The 10-year yield traded close to 5% on Thursday, a level that has become one of Wall Street’s latest obsessions. Investors in both bonds and stocks are keeping a close eye on where the 10-year yield might be headed based on the notion that yields above 5% could heap more pressure on corporations and the U.S. economy.

See: Why stock-market investors are fixated on 5% as 10-year Treasury yield nears key threshold

Rising Treasury yields spurred losses across the U.S. bond market, saddling ETF investors with heavy losses. TLT, as well as two popular corporate-bond ETFs, the iShares Core U.S. Aggregate Bond ETF
AGG,
and the iShares iBoxx $ Investment Grade Corporate Bond ETF
LQD,
were on pace for their biggest weekly declines of the year, according to Dow Jones data.

TLT was up modestly in recent trade Friday, rising 0.7% to $83.35, but it remained down 4.9% for the week. On Thursday it closed at $82.77 a share, its lowest level since July 2007, according to Dow Jones data.

Treasurys are in the midst of a historic bear market that some have described as the worst of all time. Data from Bank of America showed that Treasury prices are on track to fall for a third straight year in 2023, what would be an unprecedented development.

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