Treasury Yields Haven’t Been This High Since 2007—3 ETFs to Watch

Key Points

• The 10-year Treasury yield rose above 5.25% on Sept. 28, its highest level since mid-2007, driven by a Fed rate hike, rising crude prices, and a weak Treasury auction.
• TLT offers the highest potential reward if long-term yields peak and reverse, but carries the greatest risk if the Federal Reserve continues to tighten rates.
• HYG and SHYG provide corporate credit exposure with less interest-rate sensitivity than TLT, with SHYG's shorter duration offering more protection against further rate increases.

The bond market is flashing a signal that hasn't been present in almost two decades: the benchmark 10-year Treasury yield climbed above 5.25% on Sept. 28, 2026, cementing levels reached last week that are as high as any since the middle of 2007.

A number of factors have combined to impact the surge, including a recent Fed rate hike, fast-rising crude prices, a poorly received Treasury sale, and more.

With ties to mortgage rates, corporate financing, stock valuations, and many other areas, 10-year yields impact borrowing costs all across the economy. As yields rise, they push existing bond prices lower—and while this may be bad news for current holders, it can also benefit new buyers. Three exchange-traded funds (ETFs) offer different ways to act based on the current yield opportunity.

TLT: Long-Duration Treasuries Bring Greater Upside—and Greater Rate Risk

One of the most direct ETF plays on long-term Treasuries is the iShares 20+ Year Treasury Bond ETF NASDAQ: TLT.

When the 10-year yield reached 5.25%, TLT traded at just under $79, near the bottom of its 52-week range, and down almost 10% year to date (YTD).

With a sliding NAV, TLT is now in a position to provide much more attractive income for investors. Its dividend yield stands at 4.95% for an annual fee of just 0.15%.

Still, investors should keep in mind what this fund's focus is—it holds only bonds that mature in 20 years or more, making it highly sensitive to shifting rates.

If, for example, rates peak and then roll over, TLT could be poised for a big rebound.

On the other hand, if the Federal Reserve continues its tightening process, TLT could take a bigger hit than some of its rival bond ETFs. This makes this ETF a good play for those with a strong conviction that the bond market is going to improve and a willingness to take a decent amount of volatility and risk alongside a traditionally stable fixed income investment.

HYG: Higher Income Comes With More Corporate Credit Risk

Investors wary of TLT’s sensitivity to long-term interest rates may instead consider the iShares iBoxx $ High Yield Corporate Bond ETF NYSEARCA: HYG.

This fund, which invests in dollar-denominated, sub-investment-grade corporate bonds, has less duration risk but greater exposure to corporate credit risk.

HYG is trading down on a YTD basis, but only by about 4%. Its dividend yield is an impressive 6.10%, but investors should keep in mind that trailing yield figures can lag in a shifting interest rate landscape.

In exchange, the fund charges a much higher annual fee of 0.49%, though excellent liquidity may help to entice investors leery of spending that amount on a fixed-income fund.

This fund may appeal mostly to investors expecting economic resilience in the corporate space. If economic activity continues to expand, it could benefit corporate borrowers.

On the other hand, a growth scare that widens credit spreads could put additional pressure on HYG. This may enhance HYG's overall risk level on top of its baseline, which is already elevated compared to a Treasury-based fund like TLT.

SHYG: Shorter Duration Can Limit Interest-Rate Sensitivity

The iShares 0-5 Year High Yield Corporate Bond ETF NYSEARCA: SHYG is a variation on the corporate bond strategy offered by HYG above.

With a portfolio of junk bonds with under five years to maturity, SHYG has a duration that is just a fraction of TLT's.

As of Sept. 28, SHYG’s effective duration was just 2.35 years, compared with nearly 15 years for TLT. Its weighted average maturity was 2.82 years, which helps explain why it should be less sensitive to changes in Treasury yields than a long-duration fund.

This means that, if yields do keep climbing, it may be susceptible to smaller price swings. Reduced interest-rate exposure makes SHYG a more defensive option against further increases in yields.

At the same time, SHYG still provides competitive income, including a dividend yield of 7.13%. The fund also offers a middle-of-the-road expense ratio of 0.30%, somewhat in between the costs of the other ETFs on this list.

Matching the Bond ETF to the Rate Outlook

The recent yield spike has created very different opportunities across the bond market, and the right fit depends largely on what investors expect from rates and the economy.

TLT has the greatest rebound potential if long-term yields are near a peak and eventually reverse, but it also carries the greatest sensitivity to further rate increases. HYG reduces some of that duration risk while adding more exposure to corporate credit conditions, making it more dependent on continued economic resilience. SHYG takes that trade-off a step further, pairing high-yield credit exposure with shorter duration that may help limit price swings if rates stay elevated.

The key question is whether investors are more concerned about further rate increases or weakening credit conditions. 

With both risks still in play, these funds may be better viewed as distinct tools for different rate scenarios rather than interchangeable ways to chase higher yields.