Energy prices rally as Brent crude hits $105, driving 10-year Treasury yields to 4.91% and pressuring long-dated bonds amid persistent inflation and increased government spending.
The iShares 20+ Year Treasury Bond ETF (TLT) is under significant pressure as 10-year and 30-year Treasury yields have climbed to multi-year highs of 4.91% and 5.35% respectively. Because bond prices move inversely to yields, the rising interest rate environment and increased demand for risk premiums by investors are negatively impacting the value of long-duration bond holdings.
They are under pressure because Treasury yields are rising, and investors are demanding a higher risk premium to hold government debt amid inflation and increased government spending.
Brent crude oil surged to $105 per barrel on Thursday, fueling inflationary concerns that pushed the 10-year Treasury yield to a 2023 high of 4.91%. The spike in energy prices and rising government debt issuance continue to pressure long-duration bond ETFs, as markets brace for a potential Federal Reserve rate hike next week.
Yields are rising due to a combination of surging oil prices, persistent inflation, increased government spending, and a market expectation that the Federal Reserve will implement a rate hike.
Rising oil prices contribute to inflationary expectations, which force investors to demand a higher risk premium for holding long-term government debt, thereby driving yields higher and bond prices lower.