Long-Dated Treasuries Enter Bull Market as Fed Pivot Feeds Rally

A vehicle used to track longer-dated US government bonds surged into a bull market, as investors seek to end three years of pain on the Federal Reserve’s willingness to consider interest-rate cuts.

The iShares 20+ Year Treasury Bond ETF, a popular tool for betting on long-dated debt, jumped to touch 99.35 on Friday. That’s a gain of 21% from the 16-year low reached on Oct. 23, qualifying as a bull market. The gauge is still down more than 40% since it peaked in 2020.

While many investors are still focusing on shorter-dated bonds as a safer bet amid an uncertain outlook for monetary policy, the potential for steep gains at the longer end is drawing plenty of interest. The fund received $1.3 billion of new money on Friday, the biggest inflow in almost five months.

However, concerns of an over-supply of issuance in long-term debt and the threat that inflation could reignite next year are weighing on some investors, as they seek compensation for the added risk. Kellie Wood, deputy head of fixed income at Schroders Plc in Sydney, said her firm has been focusing on shorter-dated notes.

“This is totally a case of FOMO,” or a fear of missing out, Wood added. “Retail investors have been waiting to see more positive returns from fixed income before allocating after many years of negative returns.”