The outlook for the iShares 20+ Year Treasury Bond ETF in 2025 hinges on a strong US economy and tariffs. Labour market data is currently in a good balance, but a relatively small rise in unemployment could trigger another growth scare. Uncertainty over tariffs and inflation are weighing on TLT, but they may not be as negative as feared.
The iShares 20+ Year Treasury Bond ETF (TLT) continued retreating this week, falling from the year-to-date high of $100.2 to the current $87.82. It has plunged to its lowest level since May 31st and formed a death cross pattern.
The stock market, or all financial markets, has changed significantly over the past couple of decades. The main way they have changed is that the concept of individualism is gone, where assets behave separately and individually from each other.
The iShares 20+ Year Treasury Bond ETF (TLT) slumped by almost 2% after the Federal Reserve delivered its last interest rate decision of the year. TLT slumped to a low of $89, its lowest level since November 18.
Owning long bonds like the iShares 20+ Year Treasury Bond ETF can provide portfolio stability amidst high U.S. market valuations and potential economic uncertainties in 2025. Lower-than-expected inflation driven by declining shelter and energy costs could spur Fed rate cuts, benefiting bond prices. Rising unemployment increases the risk of a recession in 2025, making bonds a potentially safer investment compared to stocks.
When investors look at the big players on Wall Street, the hedge funds and the investment banks, they aren't the so-called winners just because they have information sources that most retail traders would have to network for years to get. They are winners because they can use information through strategies that increase their odds ever so slightly over the long run.
It's been a wild ride for long-term Treasury ETFs lately, and it's looking like they might have hit a rough patch. Following months of declining interest rates, yields on U.S. Treasurys reversed course in October, and the charts are now flashing a warning: the dreaded Death Cross is looming.
November was a strong month for SPY, gaining nearly 6% and closing above its 10-month EMA, signaling a bullish trend. TLT showed mixed signals, oscillating around its 10-month EMA, but recent higher highs and lows suggest a potential bullish trend. The TLT:SPY relative strength ratio indicates that SPY has consistently outperformed TLT since July 2020, reinforcing a preference for equities.
Trump's nomination of Scott Bessent for Treasury Secretary is seen as positive for TLT, boosting market confidence with a +2.59% rally. Bessent's market-friendly stance and deficit reduction goals are crucial for the bond market. While TLT may have bottomed, a sustained uptrend requires weaker economic data, which could emerge next year.
The recent Fed Funds Rate cuts have triggered a buying frenzy in corporate fixed-income securities, leading to mispriced credit spreads across various credit ratings. Despite the rate cuts, new IPOs show no significant change in credit spreads, indicating no fundamental improvement in corporate credit quality. I recommend a pair trade: long iShares 20+ Year Treasury Bond ETF and short Invesco Preferred ETF to exploit the mispriced credit spreads.
Investors could see a “right-now” trading opportunity take shape in long-term Treasury bonds.
Treasury bonds and bond yields (interest rates) have been a major investor focus of late. This is especially true as the Federal Reserve navigates interest rates and the presidential election takes center stage.