The iShares Treasury Bond ETF (20+ Year) fell by almost 2% following the Federal Reserve’s last interest rate decision for the year. TLT fell to $89, its lowest price since November 18. It has fallen by over 11% since the high of the year, indicating that it is in technical correction.
Federal Reserve decision
The TLT ETF plunged after the Federal Reserve cut interest rates on Wednesday by 0.25%. This cut brought benchmark interest rates down to between 4.25% – 4.50%. The interest rates have been cut by 1% in this year.
The bank implied that it was worried about the US inflation which has stopped declining. Recent data showed the Consumer Price Index (CPI), which measures consumer prices, rose from 2.4% to 2.6% between October and November.
Core inflation was 3.3%, which is higher than the Federal Reserve target of 2%. The bank expects inflation to take longer to reach the 2% target.
The focus has shifted from the labor markets to inflation. The labor market is still challenging, as the unemployment rate rose from 4,1% to 4,2% in November.
Fed officials have changed their dot plot, and now expect two interest rate reductions in 2025 rather than the previous four. One FOMC official, Beth Hammack maintained a hawkish voice and supported leaving interest rates unchanged.
The Fed has repeatedly stated that the economy is doing very well. It is on course to grow by around 2.5% this year. This is better than many of the top economies in the world. Economists, for example, believe that Europe narrowly avoided a recession this year.
The Fed is concerned by Donald Trump’s policies. He has promised to raise tariffs on top countries such as China, Mexico, Canada, and others. He hopes that the tariffs will reduce the country’s surplus in trade over time. In reality, these tariffs will be passed on to consumers as China and Mexico have lower business costs than the US.
TLT ETFs and bonds
The TLT ETF, a popular ETF, gives investors access long-term government securities. Data shows that after the Federal Reserve’s decision, the 30-year Treasury yield increased to nearly 4.7%. It has risen dramatically from the year-to date low of 3.90%.
Other short-term bonds yields also rose. The 10-year yield jumped to 4.52% – its highest level since this May – while the 5-year yield climbed to 4.40%.
These yields tend to rise when the Federal Reserve is expected to raise interest rates. Bond yields usually rise when bond prices are falling.
The TLT ETF’s poor performance this year is due to the hope of a more hawkish Fed. It has seen outflows of over $1.6 billion bringing its net year-to date inflows up to $6.4 billion.
The TLT ETF faces the greatest risk from the US public debt. This figure is over $36 trillion and is increasing by over $1 trillion per month. This debt puts the US in danger of defaulting in the next few years.
TLT ETF Stock Analysis
TradingView TLT chart
The daily chart shows the TLT ETF in a strong downward trend over the past few months. It has moved and slipped to the key support at $88.93 where it failed to move multiple times this year.
The ETF also formed a death-cross chart pattern when the 50-day and 20-day Exponential Moving Averages crossed each other. The MACD and Relative Strength Index (RSI), both indicators pointed downwards. It also formed a pattern of a head-and-shoulders.
The fund is therefore likely to have a bearish breakout, as sellers aim for the next important support at $86.
This post TLT ETF has formed a death cross following the Fed’s hawkish turn: What next? This post may be updated as new information becomes available
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