Short-Term Treasury ETFs Gain as Bond Rout Intensifies With Yields Above 5%

U.S. Treasury yields are surging, with the 10-year benchmark reaching 5.27% in late September 2023—the highest level since June 2007—triggering divergent performances across bond ETFs.

Short-term Treasury ETF TBF.US, which invests in 0-3 month U.S. Treasury bills, delivered a +2.6% total return amid the sell-off, according to Sina Finance. Bianco Research turned bullish for the first time in six years, noting that yields above 5.2% now offer a "substantial cushion" against volatility.

Intermediate-term Treasury ETF BKT.US, tracking 3-7 year maturities, hit its lowest close since October 2023 as yields climbed. Zhonglianjin reported a 50-basis-point weekly jump in 10-year yields, dragging BKT.US returns down 3.7%. Barclays Global Research cautioned that intermediate bonds would remain under pressure until economic momentum weakens.

Municipal bond ETF RAMZ.US also declined to October 2023 lows despite its tax-exempt status. Global X highlighted the need to monitor state fiscal health amid rising credit spreads, while CLS.cn cited strategist Pooja Kumra warning of prolonged pressure from "resilient economic data" and geopolitical uncertainty.

The widening performance gap—long-term bond ETFs down roughly 50% from 2020 peaks—reflects a strategic shift toward shorter-duration assets. Market participants increasingly view ultra-short instruments as the prudent choice in this high-rate environment.