Analysis: Long-Term US Treasuries (TLT) Lose Reliability as Portfolio Hedges

This analysis is based on a Seeking Alpha article [1] published on December 12, 2025, which argues that long-term US Treasury bonds and the iShares 20+ Year Treasury Bond ETF (TLT) are no longer reliable hedges against equity drawdowns. The article cites two primary factors: diminished negative correlation with equities and growing concerns about US debt sustainability.

Internal market data [0] supports the article’s concerns about TLT’s performance and volatility. From 2023 through December 12, 2025, TLT declined by 14.54% while the SPDR S&P 500 ETF Trust (SPY) gained 77.37% [0]. Additionally, TLT has a beta of 2.34 relative to SPY, indicating it is more volatile than the S&P 500 index [0]. This is a departure from historical norms where long-term Treasuries typically exhibited low or negative beta, making them effective portfolio hedges.

The article also highlights rising US debt sustainability issues and eroding creditworthiness as factors undermining TLT’s risk/reward profile, even amid higher yields. These concerns align with broader market discussions about the impact of persistent inflation and increasing debt loads on fixed-income assets.

1. Portfolio Construction Shift
   : The diminished effectiveness of TLT as an equity hedge challenges traditional models like the 60/40 stock-bond split, which depend on Treasuries’ historical negative correlation with equities.
2. Volatility Inversion
   : TLT’s beta of 2.34 (higher than SPY) [0] inverts historical behavior, meaning long-term Treasuries now carry more volatility risk than equities—further reducing their safe-haven appeal.
3. Systemic Risk Implications
   : Debt sustainability concerns extend beyond fixed-income markets, with potential long-term impacts on broader market sentiment and asset prices.

• Portfolio Vulnerability
  : Investors relying on TLT as a primary hedge may face increased downside risk during equity drawdowns due to its weakened negative correlation.
• Continued Underperformance
  : Persistent debt and inflation concerns could drive further TLT underperformance.

• Alternative Hedge Demand
  : The decline in TLT’s effectiveness may increase demand for alternatives like short-term Treasuries, TIPS, gold, or defensive equities.

Long-term US Treasuries (TLT) have lost their historical reliability as portfolio hedges due to diminished negative correlation with equities and rising US debt sustainability concerns. Internal data shows TLT underperformed SPY significantly (2023–2025) and exhibits higher volatility [0]. These trends suggest traditional portfolio allocation strategies may need reevaluation, and investors should explore alternative hedging options to manage equity downside risk.