Maybe all of the pundits who have been calling for an end to the bull market in U.S. Treasuries were on to something. Since their most recent low on December 5 through January 4, Treasury yields spiked from 1.59% to 1.92% (as their prices have fallen).
There are two key reasons for this downturn. First, the fact that the country is again over its debt limit sets up another protracted debate similar to what we witnessed in August 2011. While an outright default is unlikely, the odds that the United States' credit rating could be downgraded again are increasing. If this were to occur, any investor who is compelled to own only AAA-rated securities by their investment mandate would be forced to sell Treasuries - a prospect that is already spooking the market. Second, yesterday's release of the minutes from Federal Reserve meeting indicate that the Fed may be planning to wrap up its bond-buying program known as quantitative easing before year end - much sooner than expected.
Taken together, these factors have caused the iShares Trust Barclays 20+ Year Treasury Bond Fund (ticker:TLT) to lose 2.23% already in 2013 (through Friday) - an amount that's within striking distance of its 2.78% yield.