US Treasury bonds are on track for their best month of the year as capital flees to safe havens amid oil price spikes, military conflicts, and inflation worries. BlackRock's iShares 20+ Year Treasury Bond ETF (TLT), a widely traded proxy for long-dated US government debt, has gained 4.5% in October, excluding dividends, with six trading days left in the month. That already exceeds its next-best month this year, February's 4.24%.
Yield decline lifts bond prices
TLT was trading at $81.38 as of writing time, well above its $76.94 opening price this month. Measured from September's close, the rally is 4.5%, but calculated within October as a standalone month, TLT has technically gained 5.8% because bond prices opened lower on October 1 than they closed on September 30.
Bloomberg attributed October's rally in US Treasuries to "a global equities selloff," which has certainly been a contributor. Mechanically, yields have also retraced a bit of their substantial year-to-date gain. Because yields trade inversely to bond prices, Treasuries have risen this month while yields declined.
Specifically, the 10-year yield fell 14.6 basis points to 5.097% in the week ended October 16, its largest weekly yield drop since February 13. A lower market yield makes existing long bonds worth more, so an ETF packed with them rises in price. The TLT ETF tracks 20-year bonds, and Wednesday's 20-year par yield on Treasuries was 5.47%, down from 5.64% at the start of the month.
Oil supply disruptions add to safe-haven demand
Expensive oil, which causes inflation for a variety of goods and services via knock-on effects, has contributed to a slowdown in global economies. The Strait of Hormuz continues to stifle oil flows, military attacks on oil refineries continue in the Ukraine-Russia war, and a strike in Saudi Arabia sent Brent crude to $110 per barrel last week, with Riyadh airport closed for several days.
On October 15, Ukraine hit a refinery in Russia's Ryazan region, further constricting the supply of refined oil. Bond owners happily increased their resale values as spooked equity investors rotated into safety.
On October 11, Hormuz attacks reached the war's highest daily count, with six vessels attacked. This month has already logged 23 attacks in the strait and is on track to roughly double the average monthly number of Hormuz attacks since the Iran war started.
