Fed Chair's Comments Send 30-Year Treasury Yield Soaring

The 30-year Treasury bond yield jumped to its highest level in 19 years after Federal Reserve Chair Kevin Warsh's news conference on July 29. Bond investors are concerned that the Fed is not focused on reducing inflation, and this has led to higher yields on long-term U.S. Treasury bonds. The 30-year Treasury yield climbed 14 basis points to about 5.23% following Warsh's press conference.

The increase in bond yields means higher borrowing costs for the U.S. government and ultimately for all American businesses and consumers. However, this also presents a risk for bond investors if they believe interest rates will stay high or rise further. In such a scenario, buying long-term U.S. Treasury bonds could be a risky choice.

Two Treasury bond exchange-traded funds (ETFs) are affected by these changes: the iShares 20+ Year Treasury Bond ETF and the iShares 3-7 Year Treasury Bond ETF. The former holds 46 U.S. Treasury bonds with a duration of 20 years or longer, while the latter holds 83 intermediate-term U.S. government bonds ranging from three to seven years in length.

The iShares 3-7 Year Treasury Bond ETF has delivered annualized returns of 1.2% for the past 10 years and 0.35% for the past five years, making it a safer choice if interest rates continue to rise. In contrast, the iShares 20+ Year Treasury Bond ETF has delivered negative annualized returns in recent years.