ETFs to Play Amid Long-Term Yields' Best Week Since 1982

The bond market has been witnessing an intense sell-off, causing one of the most volatile and unusual trading weeks in recent memory. President Donald Trump's tariff roller coaster sent Treasury yields surging and prompted investors to retreat from traditional safe-haven assets.

iShares 20+ Year Treasury Bond ETF TLT, otherwise a safe haven, couldn’t live up to its reputation amid the ongoing market carnage. The TLT ETF has lost 3.3% over the past month (as of April 11, 2025). The ETF plunged 5.4% last week.

Treasury Yields Surge to Multi-Year Highs

Long-term Treasury yields skyrocketed, with the 10-year yield hitting 4.59% on April 11 — its highest level since February. That marked a dramatic 72 basis point increase from Monday’s low of 3.87%. By the end of the trading session, yields had eased slightly to around 4.49%. According to Yahoo Finance data, this was the biggest weekly move for the 10-year yield since November 2001.

Similarly, the 30-year yield climbed 3 basis points to about 4.88%, its highest since January, and recorded its largest weekly gain since 1982.

Because bond prices and yields are inversely related, the jump in yields reflects a sharp decline in bond values. The bond market, often considered a “cash collateral” zone, normally helps investors access liquidity to deploy into riskier assets like equities.

What’s Fueling the Bond Market Slump?

China holds a considerable amount of U.S. treasuries to keep its export prices low. To keep its export prices low, China must keep the renminbi low compared to the U.S. dollar. However, the amount of U.S. treasuries China holds has been decreasing since 2018.

Analysts are concerned that China may be selling U.S. treasuries in retaliation to the higher tariffs imposed on it. Plus, investors have been shifting from bonds to cash. If the trade war raises inflation (which in turn would cause a less-dovish Fed), bond yields would, in any case, remain high. The unwinding of the basis trade, a leveraged hedge fund strategy, has also been contributing to the U.S. bond market’s disaster.

ETF Strategies to Play

Given this, investors must be interested in finding out all possible strategies to weather a sudden jump in treasury yields. For them, below we highlighted a few investing tricks that investors could gain from in a rising rate environment.

Tap Senior Loan ETFs

Senior loans are floating-rate instruments that provide protection from rising interest rates.  This is because senior loans usually have rates set at a specific level above LIBOR and are reset periodically, which help in eliminating interest rate risk. Further, as the securities are senior to other forms of debt or equity, senior bank loans offer lower default risks even after belonging to the junk bond space.

Virtus Seix Senior Loan ETF SEIX, which yields about 7.99% annually, could be tapped now. The ETF was up 0.7% last week.

Still Want Bond Exposure? Look At These ETFs

Floating rate notes are investment grade bonds that do not pay a fixed rate to investors but have variable coupon rates that are often tied to an underlying index (such as LIBOR) plus a variable spread depending on the credit risk of the issuers. Since the coupons of these bonds are adjusted periodically, they are less sensitive to an increase in rates compared to traditional bonds.

Unlike fixed coupon bonds, these do not lose value when rates go up, making the notes ideal for protecting investors against capital erosion in a rising rate environment. iShares Floating Rate Bond FLOT is a good bet in this context. The fund yields 5.58% annually. The FLOT was up 1% last week.

Plus, shorting U.S. treasuries is also a great option in such a volatile environment. The picks include ProShares UltraShort 20+ Year Treasury ETF TBT, and Direxion Daily 20+ Year Treasury Bear 3x Shares TMV (read: Bets on Higher Rates Trigger Rally in Inverse Treasury ETFs).

Time for Cash-Like ETFs?

We believe cash and short-dated fixed income may play a greater role in adding stability to a portfolio. This is especially true given that the Fed may not go for aggressive rate cuts this year and short-term bond yields would remain higher. That would benefit cash-like assets such as money-market funds.

Investing options include JPMorgan UltraShort Income ETF JPST (yields 4.99% annually), and Invesco Global Short Term High Yield Bond ETF PGHY (yields 7.70% annually), Such short-term bond ETFs also have lower interest rate sensitivity.

Hedge Rising Rates With Niche ETFs

There are some niche ETFs that guard against rising rates. These ETF options are: Simplify Interest Rate Hedge ETF PFIX, Global X Interest Rate Hedge ETF RATE, and Foliobeyond Rising Rates ETF RISR.

Go Short with Rate-Sensitive Sectors

Needless to say, sectors that perform well in a low-interest rate environment and offer higher yield, may falter when rates rise. Since real estate and utilities are such sectors, it is better to go for inverse REIT or utility ETFs.

ProShares UltraShort Real Estate SRS, ProShares Short Real Estate REK and ProShares UltraShort Utilities SDP are such inverse ETFs that could be winning bets in a rising-rate environment.

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This article originally published on Zacks Investment Research (zacks.com).

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