Exclusive: Why 'Safe' US Treasury ETFs Suffered a 'Perfect Storm for Generational Losses'—And Where Experts Say to Hide Now
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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.”
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Louis Navellier, CIO of Navellier & Associates, points out that the iShares 20+ Year Treasury Bond ETF 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.
The ‘Safe Asset’ Illusion
Renée Friedman, Global Head of Research at EXANTE, emphasizes that “investors confuse zero default risk with zero price risk because they think just because the government can print the currency in which the bond is denominated, that there is no risk.”
She notes inflation, AI capital expenditures, and rising debt levels have severely compounded duration risk.
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Alexander Lis, CIO at SDV, is even more blunt regarding the 44% five-year plunge in TLT: “There is no such thing as a ‘safe asset’.” Lis attributes the underlying weakness to a growing term premium as investors lose hope that policymakers will “properly address the potential spiraling debt growth problem.”
Where to Hide Now?
Attempting to buy the dip on long-duration Treasury ETFs right now is widely viewed as a dangerous gamble. Instead, experts suggest the following allocations to preserve capital and capture yield:
|
Expert |
Firm |
Preferred Strategy |
Rationale |
|
Lawrence Gillum |
LPL Financial |
1–5 Year Treasuries / Short TIPS |
Avoids the long end; offers attractive income as yields are expected to remain elevated. |
|
Dr. Renée Friedman |
EXANTE |
“Belly of the Curve” (3-7 Years) |
Avoids locking in losses on long-end dips amid persistent global policy uncertainty and inflation. |
|
Charlie Ripley |
Allianz |
T-Bills or 1-Year Notes |
Provides the absolute highest level of capital preservation, though susceptible to reinvestment risk. |
|
Louis Navellier |
Navellier & Associates |
Individual Bonds |
Holding to maturity guarantees par value and eliminates ETF “transaction risk.” |
Photo Courtesy: Jason Raff on Shutterstock.com
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