The widow-maker ETF

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Fading confidence that the Federal Reserve will keep cutting interest rates has sent the 10-year Treasury yield back up over 4 per cent. That has proven painful for a lot of people who keep betting rates will fall.

Finance being an industry that has never had a lot of gender diversity, investments that prove awfully and continuously bad are sometimes called “widow-maker trades”. Shorting Japanese government bonds is the cliché widow-maker, while some think shorting Chinese government bonds will be this generation’s ultimate pain trade.

But maybe the hot new widow-maker is actually going long US Treasuries, through the iShares 20+ Year Treasury Bond ETF — best known by its ticker TLT.

This is a near-$60bn ETF focused on long-maturity Treasuries. Investors who use it to bet on a dovish shift in monetary policy keep taking a pounding.

What is really remarkable is that investors seemingly can’t resist putting more money into TLT despite the repeated walloping.

Koyfin data indicates that the ETF has taken in another $1.45bn over the past week, lifting its 12-month inflows to $17.5bn. That’s despite sliding 9 per cent since mid-September, which has pushed 2024 performance back into negative territory (-6.7 per cent at pixel time).

Even TMF, a triple-leveraged version of TLT that has lost almost 20 per cent over the past month, has seen inflows of $133.4mn in the last week, according to the data provider.

How long will the punishment continue? Probably not nearly long enough to earn a place next to JGBs, Tesla or nat-gas in the widow-maker hall of fame. But as long as the US economy stays remarkably strong it’s going to be painful.

At least the Economist is playing its part in lifting the spirits of TLT longs. Here’s this week’s cover. Maybe it will prove another “Brazil takes off”?