As national debts rise globally and international oil prices soar, interest rates have climbed worldwide, delivering a direct blow to the returns of Treasury bond ETFs (exchange-traded funds). In particular, domestically listed ETFs faced even greater downward pressure on returns due to currency losses from the strengthening won. Financial industry experts judge that the likelihood of a sharp drop in global oil prices before the U.S. midterms is low and advise investors to wait until after the election before purchasing bonds.
According to KOSCOM's ETF CHECK data as of the 16th, as of the 11th, the recent one-month return for 'TIGER U.S. 10-Year Treasury Futures' was -5.61%, and 'KODEX U.S. 10-Year Treasury Futures' stood at -5.47%. This places them among the lowest-performing of the 140th bond ETFs listed domestically. Returns over three months and six months both fell into the double-digit negative range, exceeding -10%.
This decline in ETF returns is attributed to the sharp rise in U.S. 10-year Treasury yields. Bond prices move inversely to interest rates: when rates rise, prices fall. On the 11th (local time), the yield on U.S. 10-year Treasuries reached 4.97%, and during trading hours that day it climbed as high as 5.041%, marking its highest level in over 19 years since July 2007.
The surge in U.S. 10-year Treasury yields to levels seen at the onset of the global financial crisis stems from expanding fiscal policies in major economies combined with high oil prices, which have amplified inflation concerns. In particular, on that day, U.S. Treasury Secretary Scott Bessent stated during a House hearing that the rise in 10-year yields was also influenced by the U.S. fiscal deficit issue.
International oil prices continue to exceed $100 per barrel as geopolitical tensions in the Middle East remain unresolved. On that day, West Texas Intermediate (WTI) crude rose $4.44 (4.38%) from the previous session to close at $105.83 per barrel, while Brent crude increased by $3.07 (2.9%) to reach $108.75 per barrel. Both benchmarks hit their highest levels since May 19. Concerns over oil supply have intensified after a Saudi Arabian oil pipeline used for indirect exports was struck and halted by Yemen's Houthi rebels, and reports emerged that three oil fields in Libya had also stopped operations.
In particular, the sharp appreciation of the won added currency loss costs, further dragging down returns on U.S. 10-year Treasury bond ETFs. On the 9th, the won/dollar exchange rate in Seoul's foreign exchange market closed at 1,336.1 won per dollar, down 9.5 won from the previous trading day, marking the lowest level since October 2024—approximately 23 months ago—on a closing price basis. Most U.S. 10-year Treasury ETFs are structured with currency exposure. Consequently, the won/dollar exchange rate's sharp decline of about 220 won over two months was fully reflected in their prices.
South Korea also saw its 10-year Treasury yield break above 4.6% the previous day, reaching its highest level in nearly four years since 2022. As a result, red lights flashed for 10-year Treasury bond ETFs as well. As of that day, 'PLUS Korean Treasury 10-Year Active' (-1.59%), 'KODEX Korean Treasury 10-Year Active' (-1.62%), and 'SOL Korean Treasury 10-Year' (-1.70%) all posted returns in the -1% range.
Experts believe it is unlikely that the Middle East war will end or that international oil prices will ease significantly before the U.S. midterms. Accordingly, they advise investors to approach bond investments cautiously while waiting for the election outcome. Moon Hong-cheol, a researcher at DB Securities, stated, "The attack on Saudi Arabia's indirect oil export route could become a new game-changer for inflation." He added, "Since markets are extremely sensitive to interest rate hikes, it is necessary to operate as conservatively as possible without setting an upper limit."
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