Bond pro Gundlach says a recession is coming as the TLT ETF plunges

The iShares 20+ Year Treasury Bond ETF (TLT) stock price crashed to the lowest level since January 2014 as the bond sell-off intensified. The TLT fund slipped to a low of $85.06, almost 50% below the highest level in March 2020.

iShares 20+ Year Treasury Bond ETF outflows

The biggest economic news of the week is the ongoing rout in the bond market. The most recent data shows that the 10-year bond yield jumped to 4.87% on Wednesday. Similarly, the 30-year yield soared to 5% for the first time in more than a decade.

American bonds have crashed as investors assess numerous factors in the economy. First, there are worries that interest rates will continue hiking interest rates in the coming months. In a statement on Tuesday, Loretta Mester said that the bank would continue hiking rates or leave them in the current level for longer.

This view has been supported by the FOMC’s dot plot, which pointed to another 0.25% increase later this year. If this happens, the Fed will push rates to a high of between 5.50% and 5.75%, the highest point in more than a decade.

Second, there are concerns about the pace of the growing US bond market. The American government has seen its total debt jump to more than $33 trillion. In the past few weeks, the debt has jumped by more than $400 billion and analysts believe that the trend will continue.

At the same time, countries like China and Saudi Arabia have slashed their US debt holdings. China’s holdings of America’s debt have plunged to over $800 billion, the lowest level since 2009. Therefore, as the debt rises, there are concerns about who will buy the bonds.

Further, there are worries that the American economy could sink to a recession as the yield curve de-invert. In a statement, Jeff Gundlach, the head of Doubleline Capital said:

The US Treasury yield curve is de-inverting very rapidly. Was at -108 bp a few months ago. Now at -35 bp. Should put everyone on recession warning, not just recession watch. If the unemployment rate ticks up just a couple of tenths it will be recession alert. Buckle up.

— Jeffrey Gundlach (@TruthGundlach) October 4, 2023

Meanwhile, the  iShares 20+ Year Treasury Bond ETF is seeing more inflows. Data shows that investors have pulled over $363 million in October after it added over $1.5 billion in September. The fund has added over $16 billion in assets this year.

TLT ETF stock price forecast

The weekly chart shows that the iShares 20+ Year Treasury Bond ETF stock has been in a strong bearish trend, as I wrote here. It has plunged below the important support level at $89, the lowest level in October 2022. The fund has remained below the 50-day and 100-day moving averages while the Relative Strength Index (RSI) moved below the oversold level.

Therefore, the TLT ETF will likely continue falling as sellers target the key support at $75. The stop-loss for this trade will be at $90.