Why this popular Treasury bond ETF is trading at its lowest since 2004

By Isabel Wang

Large federal deficits and growing corporate borrowing for AI are cutting investor demand for long-term U.S. government bonds

This Treasury ETF just fell to its lowest level in more than two decades

The iShares 20+ Years Treasury Bond ETF has earned a reputation lately for how reliably it can burn investors trying to call the bottom in long-dated U.S. Treasury debt.

Now, pain in the sector has piled up into something historic: One of the most heavily-traded exchange-traded funds to track the performance of longer-term U.S. government debt has slumped to a level last seen over two decades ago. The fund TLT, which trades under the ticker "TLT," was down about 0.8% on Monday to finish at $81.35, its lowest close since June 14, 2004, according to Dow Jones Market Data.

The fund has fallen 6.6% on the year through Monday, its worst year-to-date performance since the historic bond-market rout of 2022, according to FactSet data.

Bond prices move in the opposite direction of yields. So a sharp drop in prices for U.S. government bonds reflects a significant uptick in yields. Put another way, yields rise when investor demand drops. While climbing since late June, the 30-year Treasury yield BX:TMUBMUSD30Y gained another 4.5 basis points on Monday, to reach 5.31%, its highest yield since June 29, 2004, based on 3 p.m. yields in New York. The 10-year rate BX:TMUBMUSD10Y rose 3 basis points to 4.725%, among the highest yields of the second Trump administration, according to Dow Jones Market Data.

Luis Alvarado, co-head of global fixed income at Wells Fargo Investment Institute, said it's growing federal deficits and the artificial-intelligence borrowing spree that make long-term U.S. government bonds, and TLT, less attractive for investors.

When federal deficits swell, governments tends to issue debt to fund the spending. The U.S. government last week sold 30-year bonds at the highest interest rate since 2001, reflecting the higher compensation investors are demanding to finance the nation's growing deficit. The yield at the $25 billion sale on Thursday came in at 5.216%, the highest since the early part of this century.

Meanwhile, "hyperscalers" are also borrowing heavily to build out their massive AI infrastructure projects, creating intense competition for capital from a similar pool of investors. "Both Treasurys and corporates look for the same long-term-yield investors that are income-oriented," Alvarado told MarketWatch on Monday.

Alphabet Inc.'s (GOOGL) (GOOG) recent 30-year bonds with an August 2056 maturity were issued at a yield of nearly 6.4%, according to a public filing, a sizeable premium to the 5.3% yield on similar U.S. Treasury debt.

The latest Treasury rout has spooked investors who now own highly volatile assets but are looking for safe and reliable returns. That's made some investors eager to dump their exposure.

Yet BlackRock (BLK), the world's largest asset manager and the manager of the TLT ETF, said some investors also have taken advantage of the recent lows to add exposure, potentially suggesting they see room for the recent drawdown to ease. The fund has taken in $6.4 billion in net inflows so far in the third quarter, with daily trading volume topping $4.2 billion on Aug. 7 alone, according to data compiled by BlackRock.

"We are interpreting the flows in August as clients seeking to add duration once yields hit historic highs," a BlackRock spokesperson said. "Investors are using TLT as a diversifier in their portfolios, for liability-driven investments, and to express a view on interest rates."

The fund has seen total net inflows of $1 billion so far in 2026, according to BlackRock data. What happens next could hinge on how much AI debt needs to be absorbed by investors in the months ahead.

Still, investors have been less concerned lately about possible Federal Reserve interest-rate hikes in 2026. That's because the latest inflation reading for July, which saw the consumer price index rise a scant 0.1% for the month, matched Wall Street's forecast and curbed some inflation anxiety on Wall Street.

"The long end is increasingly trading on fiscal and supply dynamics rather than simply on expectations for the next Fed move," said Yulia Alekseeva, head of fixed income at MissionSquare. "Softer near-term data has reduced front-end hike pressure, but fiscal risks, supply and a smaller Fed balance-sheet footprint leave the long end requiring a higher risk premium."

-Isabel Wang

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08-17-26 1833ET