TLT ETF slides 10% as US debt nears $40 trillion milestone

US public debt is set to cross $40 trillion within two weeks, a milestone that has pushed the 30-year Treasury yield to 5.20% and driven the iShares 20+ Year Treasury Bond ETF 10% below its 2025 high.

The fund has shed more than $4.4 billion in assets this year, with outflows of $282 million on Friday alone, according to fund flow data. Technical analysis from TradingView shows the ETF trading in a descending channel below all its moving averages, with $80 the next support level.

The 30-year yield has climbed from a year-to-date low of 4.60% and sits a few basis points below its 2026 high of 5.28%. The move tracks a surge in government spending: the Trump administration is requesting more than $90 billion in additional funding for the US-Iran war, which has already consumed over $40 billion, alongside a defense budget request of $1.5 trillion, up from $1 trillion a year earlier. The administration is also seeking funds for new battleground ships estimated to cost over $275 billion.

Rising long-end yields raise the government's borrowing costs just as the debt load approaches the $40 trillion mark, and they ripple into mortgage rates and equity valuations. The Federal Reserve has held its policy rate at 3.50%-3.75% for a fifth straight meeting, with markets pricing a 62.5% chance of no change in September, according to Polymarket.

The last time the 30-year yield traded above 5.25% was in 2007, before the global financial crisis. The current climb has unfolded even as the Fed cut rates three times between September and December 2025, from 4.25%-4.50% to 3.50%-3.75% — a reminder that long-term yields respond to inflation expectations and fiscal supply, not just policy rates. After the September 2024 cut, TLT fell 11% over the following two months as inflation moved higher.

Investors have rotated into short-duration Treasuries to limit the damage. The State Street SPDR Bloomberg 1-3 Month T-Bill ETF has added more than $4.10 billion in assets this year, roughly matching the outflows from TLT. Short-term bills track the federal funds rate more closely and carry far less duration risk if yields stay elevated.

The fiscal backdrop is unlikely to ease soon. The administration's renewed push to remove Federal Reserve Governor Lisa Cook — a move the Supreme Court halted — adds political uncertainty to the central bank's independence. Japan's intervention to support the yen, which the administration backed to prevent further selling of US Treasuries, shows how debt levels are now shaping foreign-exchange policy.

For investors, the question is whether the $40 trillion milestone forces a repricing of the long end. If the 30-year yield breaks above 5.28%, TLT's slide toward $80 could accelerate. If a recession shock drives a flight to safety, long bonds would rally sharply. The September Fed meeting, where markets see a 35.5% chance of a 25-basis-point hike, is the next test.

This article is for informational purposes only and does not constitute investment advice.