J Studios/DigitalVision via Getty Images Long-term treasuries have been recently under pressure, experiencing two days of relatively sharp decline on May 28 and May 29, before starting to see some relief. Despite the structural need for interest rates to come down, I will discuss why I think we could see a softening trend in interest rates in the short term and why the iShares 20+ Year Treasury Bond ETF ( NASDAQ: TLT ) is an attractive instrument to play this theme. It’s been a difficult market to call Bond markets have been jittery throughout 2024 due to conflicting signals regarding the size and timing of future interest rate hikes.
Rising bond yields pose a significant threat to the US Government’s borrowing ability given the large and growing debt levels, which in this period seem to have completely overshadowed the traditional concerns around corporate borrowing costs leading to squeezed profit margins. I want to share why I believe an ETF like TLT is currently attractive despite the negative sentiment and the recent weakness. I start the discussion by acknowledging that this market has been very difficult throughout 2023 and 2024 and traders overestimated the probability of rate cuts so far.
Early 2024 saw market participants anticipating rate cuts by March but persistent inflation leading to a more hawkish stance from the Fed dramatically changed expectations around the trend rates are expected to follow this year. According to the CME FedWatch Tool, the most likel.
