The Vanguard Long Term Treasury ETF and the iShares TLT ETFs (iShares 20+ Years Treasury Bond) both crashed this week, as US Treasury yields soared to a 2-year high.
The TLT ETF has dropped to $86, a drop of over 14% compared to its August 2024 peak. It is now at its lowest point since May 2nd. VGLT has also fallen to $54.48, its lowest level since May 29th. Both funds continue to underperform as risks increase.
US bond yields are on the rise
The main reason for the TLT and VGLT ETFs’ decline is that US treasury rates have soared. This has led to a drop in their prices. Bond prices and yields are inversely correlated.
The 30-year US Government Bond yield soared to 4.92% Wednesday, its highest since November 2, and 26% higher than the lowest level of September last year. The ten-year and five-year yields have also continued to rise.
There are signs the 30-year yield is forming an inverse head-and-shoulders pattern, which is a popular bullish signal in the market. This pattern is composed of a neckline and two shoulders. It often leads to greater gains.
The 30-year also formed a golden-cross pattern when the 50-day and the 200-day Exponential Moving Averages flipped. This cross is among the most bullish patterns on the market.
The 30-year yield Relative Strength Index and MACD continue to rise, a sign of momentum. There is a chance that it could rise to the high of 5.17% in 2023.
Why US yields are surging
US bond yields are surging after a series positive economic data points to higher interest rates longer.
Bureau of Labor Statistics data showed that there were over 8 million job vacancies available in the US, a six-month record. This is a sign of a strong labor market.
There is also a risk that US inflation will continue to be high for some time. The Consumer Price Index (CPI), which is the most important measure of inflation, rose from 2.4% to 2.7% last month. Fed officials expect US inflation will reach the 2% goal later in 2026.
If they work, some of Donald Trump’s policy can be highly inflationary. A high tariff on imported products, for example, would lead to a large price increase. The same applies to other policies such as mass deportations or tax cuts.
The next catalyst for the TLT/VGLT ETFs is the upcoming US Nonfarm Payrolls (NFP) report. These numbers will give us more information about the economy’s state and what to expect from Fed.
Read more: VGLT, TLT ETFs retreat as concerns of a “black swan” event rise
TLT ETF Analysis
TLT and VGLT ETFs always move in the exact same direction because they track the same assets. The daily chart shows the TLT fund in a strong downward trend since its peak of $100 in September last.
The 200-day and the 50-day moving averages crossed each other recently, forming a death cross pattern.
The stock has fallen below the important support of $88.9 and is now at its lowest level since 8 November. The MACD and Relative Strength (RSI) both point downwards.
The next level to watch is $84.7, which was its lowest swing on 24 April. A drop below this level will lead to further downside, possibly down to $78.55, the lowest level of last October. This TLT forecast is consistent with our previous outlook. The VGLT ETF is also likely to follow the same trend.
This post Why the VGLT ETF and TLT ETFs may fall further soon appeared first at ICD
This site is for entertainment only. Click here to read more
