US Treasury bonds on track for biggest rally since February

As oil prices, military conflicts, and inflation weigh down on the world’s economies, owners of US Treasury bonds are benefitting from capital flight to their safe haven. They’re on track to have their best month of the year.

Currently up 4.5% excluding dividends with just six trading days before Halloween, BlackRock’s most-traded US Treasury ETF has already surpassed its next-best month this year, February’s 4.24%.

TLT, BlackRock’s widely traded proxy for US Treasury bonds with a 20-year maturity or longer, is trading at $81.38 as of writing time, far above its $76.94 opening price this month.

Year-to-date monthly returns of the BlackRock iShares 20+ Year Treasury Bond ETF, ex-dividends .

Interestingly, TLT’s monthly rally measured from September’s close is 4.5%, but it’s actually higher calculated within October as a standalone month.

Because bond prices opened for trading on October 1 lower than they closed on September 30, TLT has technically gained 5.8% so far this month.

To maintain consistency, however, all returns in the above chart are measured from the closing price of each prior month.

Bloomberg attributed October’s rally in the value of US Treasuries to “a global equities selloff,” which has certainly been a contributor. Mechanically, yields have also retraced a bit of their substantial year-to-date gain, so because yields trade inversely to bond prices, the value of Treasuries have risen this month while yields declined.

Specifically, the 10-year yield fell 14.6 basis points to 5.097% in the week ended October 16, its largest weekly yield drop since February 13.

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Treasury bond prices rally amid yield drawdown

A lower market yield makes existing long bonds worth more, so an ETF packed with them rises in price.

The TLT ETF tracks 20-year bonds, and Wednesday’s 20-year par yield on Treasuries was 5.47%, down from 5.64% at the start of the month. Lower yields have made higher prices.

Expensive oil, which causes inflation for a variety of goods and services via knock-on effects, has certainly contributed to a slow-down in global economies.

The strait of Hormuz continues to stifle oil flows, military attacks on oil refineries continue in the Ukraine-Russia war, and a strike in Saudi Arabia sent Brent crude to $110 per barrel last week, with the Riyadh airport closed for several days.

On October 15, as another example, Ukraine hit a refinery in Russia’s Ryazan region, further constricting the supply of refined oil.

Bond owners happily increased their resale values as spooked equity investors rotated into safety.

On October 11, Hormuz attacks reached the war’s highest daily count, with six vessels attacked. This month has already logged 23 attacks in the strait and is on track to roughly double the average monthly number of Hormuz attacks since the Iran war started.

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