Peter Schiff issues dire warning on BND, VGLT, and TLT bond ETFs

The bond market is going through a serious challenge as risks to the American economy continues. The yield of the 10-year Treasuries has soared to 4.65%, the highest point since 2007 while the 30-year has jumped to 4.75%. 

Government bonds are in a steep sell-off

Short-term bond yields have risen while the spread of the 10 and 2-year yields has slumped to -53%. The yield curve has not been this inverted since the Great Depression. Inflation is still a thorn in the flesh while risks of another US credit rating downgrade has risen.

As a result, some of the biggest long-term Treasuries ETFs have plunged to the lowest level in years. As I wrote here, the closely-watched iShares 20+ Year Treasury ETF (TLT) has plunged to 2014 lows. TLT ETF has slumped by over 47% from the highest level in 2020.

TLT is not alone. The Vanguard Total Bond Market Index Fund (BND) has slipped to $69.48, ~16% below the highest point in 2020. This decline has brought the total assets of this fund to over $94.4 billion. 

The Vanguard Long-Term Treasury ETF (VGLT) has dropped to $55.55, the lowest point since June 2024. It has slipped by more than 45% from the highest level on record.

VGLT, BND, and TLT ETF chart

Peter Schiff warning on bonds

Some analysts believe that the worst is yet to happen. In a tweet, Peter Schiff, the Chief Economist and Global Strategist at Euro Pacifc Asset Management (EuroPac), warned that the worse is yet to happen. He also warned that the upcoming economic collapse will be the worst in modern times.

We are still early in what will become the biggest bond market crash in U.S. history. Given that the U.S. economy is more levered now then at any time in history (governments, corporations, and individuals,) the coming economic and financial crisis will be unprecedented in size.

— Peter Schiff (@PeterSchiff) September 27, 2023

There are reasons to be concerned. For one, Moody’s warned that it could downgrade America’s Triple-A rating if the government is shutdown. S&P Gkobal slashed the rating in 2011 while Fitch did the same this year.

At the same time, government borrowing has surged at the fastest pace on record, with the country spending 44% of its GDP per year. The deficit has soared to 6% of the GDP. The cost of servicing the country’s debt has doubled to 3% of the GDP. As I warned a few months ago, the government debt will roar to over $50 trillion in the next few years.

Many do not understand the implications of US debt service costs rising.

For nearly 20 years, it was effectively free for the US to issue debt as debt service costs were ~1.5%.

Now, debt service costs have doubled to 3% and will rise toward 5% as rates skyrocket.

To put this… pic.twitter.com/H2aMHMaT1v

— The Kobeissi Letter (@KobeissiLetter) September 27, 2023

The challenge for the US is that some of the biggest buyers of US debt like China and Saudi Arabia are now dumping their holdings. The other challenge is that neither Republicans nor Democrats are willing to handle the crisis.

For one, they are not willing to cut spending on both welfare and the military, which are the biggest drivers of spending. Therefore, there is a likelihood that the TLT, VGLT, and BND ETF stocks will continue falling in the near term.