TLT Falls to 22-Year Low as Hedging Costs Rise to Five-Month High
Miles Bennett
BlackRock's long-bond ETF TLT fell to its lowest since 2004, down over 50% from its 2020 peak; the 30-year Treasury yield hit 5.28%, and hedging costs surged — the market is pricing in further losses.
What just happened to TLT?
TLT hit its lowest price since 2004 on Friday, undercutting the global financial crisis trough. The drawdown from its 2020 high now exceeds 50% — the deepest since the fund's inception.
The 30-year Treasury yield rose to 5.28% the same day, the highest since 2007. This means → holders of long-dated Treasuries are sitting on the worst losses in TLT's history.
The trigger: the Fed's Wednesday meeting — its seventh straight hold. Markets are increasingly worried that Fed Chair Kevin Warsh cannot tame inflation that has run above target for five consecutive years.
Why is TLT called a "widow maker"?
TLT once attracted a wave of investors betting on a bond rally, pushing total assets above $60 billion. In plain terms = crowds piled in expecting rates to fall and bonds to recover — and kept losing.
As yields kept climbing and the rebound never came, assets shrank to roughly $41 billion, a nearly one-third decline.
This reflects a crumbling faith in "rates will eventually come down" — after repeated failures, capital is walking away.
Why are hedging costs surging?
The 1-month 25-delta skew — a measure of how much more expensive puts are relative to calls — hit a five-month high.
On Wednesday, a large buyer paid roughly $20 million in premium for 30-year Treasury puts, hedging against yields rising to around 5.3%. This means → someone is spending real money betting long bonds will keep falling.
That trade was struck at 23 to 37 basis points per $100 face value; by Friday the price had spiked to 75 basis points — more than doubling in two days.
How much further is the market pricing in?
Options flow since the Fed meeting shows the market pricing 10-year yields at 4.9% and 30-year yields at 5.42%. Put simply = traders believe rates have not peaked — the 2007 all-time high is only a step away.
Investors are positioning across both the 10-year and 30-year tenors, mainly through multiple options structures built around September Treasury puts.
Friday flows point to expectations for the 10-year yield to reach roughly 4.8%, about 10 basis points above the current level.
Why isn't the MOVE index following?
The ICE BofA MOVE index — tracking overall Treasury options implied volatility — has stayed relatively flat during the recent yield surge, diverging sharply from the spike in put premiums.
This means → fear of extreme downside is intensifying, but broad volatility expectations have not yet ratcheted up across the board — the anxiety is concentrated in the tail, not the whole distribution.
If inflation expectations keep building, whether long-end rate volatility can stay this contained will be a critical test of whether the market has priced in enough risk.
Content is for reference only, not financial advice.