U.S. Long-Term Treasury ETF Prices Plunge as Retail Investors Cut Losses

Retail investors have begun cutting their losses on U.S. Long-Term Treasury Bond ETFs. The move comes as U.S. Treasury yields surged to their highest level in 19 years, dragging related ETF prices to record lows and leaving them with weak returns.
According to the Korea Exchange (KRX) on the 25th, the bond ETF that individual investors sold the most on a net basis from the start of the year through the 22nd was TIGER 30Y UST Covered Call Active (H), with net sales of 158 billion won. The product follows the yield of U.S. Treasury bonds with maturities of 20 years or more while also selling call options as part of a covered-call strategy. It has fallen 3.49% so far this year.
Along with that fund, other U.S. long-term Treasury ETFs have dominated the top ranks of net bond ETF sales by individuals this year. They include ACE U.S. 30-Year Treasury Bond Active (Hedged), at minus 148.8 billion won; TIGER U.S. 30-Year Treasury STRIPS Active (Synthetic H), at minus 98 billion won; and RISE U.S. 30-Year Treasury JPY Exposure (Synthetic H), at minus 44.5 billion won.
The sharp rise in U.S. Treasury yields to a 19-year high has sent bond prices tumbling, leading retail investors to effectively cut their losses. On the 20th local time, the yield on 30-year U.S. Treasury bonds briefly rose to 5.201%.
The rise in bond yields is closely tied to concerns that soaring international oil prices are adding to inflationary pressure. As the impact of the prolonged Middle East war continues, June WTI crude oil futures have been fluctuating around $100. With high oil prices persisting, inflation concerns have intensified, and markets are increasingly betting that global central banks will raise interest rates to bring prices under control.
Rising fiscal burdens in the United States have also added to the upward pressure on yields. According to outlooks released earlier this month by U.S. Treasury primary dealers, the U.S. fiscal deficit for the fiscal year ending in September is expected to reach $1.95 trillion, or about 2,947 trillion won, and widen to $2 trillion in 2027.
As U.S. long-term Treasury yields jumped to a 19-year high, prices of major domestic U.S. long-term Treasury ETFs fell to levels near their all-time lows. ACE U.S. 30-Year Treasury Bond Active (Hedged), the largest U.S. long-term Treasury ETF by net assets, closed on the 20th at 7,235 won, down 0.41% from the previous session. That was its lowest price since listing.
Investor outflows from U.S. bond funds are also widening. According to FnGuide, a total of 2.031 trillion won left North American Bond Fund products from the start of the year through the 22nd. That compares with net inflows of 2.4304 trillion won during the same period last year.
Brokerage analysts expect U.S. long-term Treasury yields to keep trending higher through the end of this year. Some also say it could take as long as nine months or more before the inflationary pressure from high oil prices begins to ease.
Heo Seong-woo, a researcher at Hana Securities, said, "U.S. inflation data are expected to peak as early as the fourth quarter of this year to the first quarter of next year, before gradually declining." He added, "Because the U.S. economy has a larger services sector and greater labor-cost sensitivity, the lag between peak oil prices and peak inflation will likely be longer than the nine months seen during the Russia-Ukraine war in 2022."
He also said, "The Fed under Kevin Warsh is expected to maintain its rate-hold stance." He added, "However, it may stop or reduce reinvestment in long-term Treasury bonds in order to shorten the average maturity of the bonds it holds, which could add supply pressure to the private market and lead to further upward pressure on long-term yields."
nodelay@fnnews.com Park Ji-yeon Reporter