US Treasury bonds heading for strongest monthly gain since February

Oil prices, military conflicts and inflation are putting pressure on global economies, but owners of US Treasury bonds are gaining as capital flows into safe-haven assets. The bonds are heading for their strongest monthly performance of 2024.

BlackRock's most-traded US Treasury ETF, up 4.5% excluding dividends with six trading days left until Halloween, has already beaten its next-best month this year, which was February's 4.24% gain.

At the time of writing, TLT — BlackRock's widely used ETF for US Treasuries with maturities of 20 years or more — was trading at $81.38, well above its opening price this month of $76.94.

When measured from September's closing price, TLT's monthly gain is 4.5%, but if calculated within October alone, it is actually larger.

Since bond prices opened on October 1 at a level below September 30's close, TLT has technically risen 5.8% in October to date.

Bloomberg linked the October rally in US Treasuries to "a global equities selloff," which has indeed played a part. Yields have also pulled back some of their large year-to-date increase. Since yields and bond prices move in opposite directions, Treasury values have climbed this month as yields fell.

In the week through October 16, the 10-year yield dropped 14.6 basis points to 5.097%, marking its biggest weekly decline since February 13.

Treasury bond prices climb as yields drop

When market yields decline, existing long-dated bonds become more valuable, pushing up the price of an ETF that holds them.

TLT tracks 20-year Treasury bonds. On Wednesday, the 20-year par yield stood at 5.47%, down from 5.64% at the beginning of the month. The drop in yields has lifted prices.

High oil prices, through their knock-on impact on many goods and services, have fueled inflation and contributed to a global economic slowdown.

The Strait of Hormuz is still disrupting oil transit, refinery attacks persist in the Ukraine-Russia conflict, and a strike in Saudi Arabia pushed Brent crude to $110 a barrel last week, along with closing the Riyadh airport for several days.

Ukraine struck a refinery in Russia's Ryazan region on October 15, tightening the supply of refined oil.

Bondholders saw the resale value of their holdings rise as nervous equity investors shifted into safer assets.

On October 11, attacks in the Strait of Hormuz hit a daily record for the war, with six ships targeted. So far this month, 23 attacks have been recorded in the strait, putting it on pace to roughly double the average monthly count since the Iran war began.