Investors flocking to long-duration U.S.
Treasury ETFs for safety have instead been met with a "perfect storm for generational losses." This historic crash stems from a fatal market misunderstanding: equating the zero default risk of the U.S. government with zero price risk, leaving supposedly safe bond funds exposed to brutal interest rate shocks and surging volatility.
The Duration Trap Lawrence Gillum, Head of Fixed Income for LPL Financial, told Benzinga exclusively that the aggressive Fed rate hiking cycle starting in 2022 battered long-maturity securities that had historically low coupons.
This combination created "a perfect storm for generational losses in fixed income markets." Louis Navellier, CIO of Navellier & Associates, points out that the iShares 20+ Year Treasury Bond ETF (NASDAQ:TLT) is "a perfect example of duration risk," highlighting that buyers from March 2020 "have lost over 50% of their principal." Charlie Ripley, Senior Investment Strategist for Allianz Investment Management, adds that retail investors regularly "comingle creditworthiness with price stability." Because ETFs constantly buy and sell to maintain a target duration, TLT acts more like "a directional view on interest rates rather than a capital preservation tool," with recent realized volatility mirroring the S&P 500.
