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Bond ETFs fell in Q3 as yields hit crisis-era levels
Long-term Treasuries dropped 7.6% in the quarter, while short-term core bonds fell 0.9%, highlighting the impact of duration.
Bonds slid in the third quarter as sticky inflation and heavy corporate borrowing pushed interest rates higher, with Morningstar’s Sarah Hansen reporting that Treasury yields returned to levels last seen during the financial crisis.
According to the report, the 10-year Treasury yield reached 5.3% and the 30-year climbed to 5.6%. Because bond prices move opposite to yields, the rise in rates weighed on returns as the Fed raised rates again in September.
Duration shaped performance, with long-term Treasuries falling 7.7% in Q3 and short-term core bonds down 0.9%, the report said. Morningstar also cited bond futures markets pricing in better-than-even odds of two additional rate hikes before year-end.
The outlet noted that higher yields can increase income for bond investors and provide a larger cushion against potential future price declines, while managers of active, multi-sector funds could adjust duration and sector mix rather than tracking a fixed position.