iShares 20+ Year Treasury (TLT) ETF is in a freefall: avoid at all cost

By:
on Oct 19, 2023
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  • The iShares 20+ Year Treasury Bond ETF has been in a freefall.
  • It has crashed by more than 50% from the highest level in 2020.
  • The American government faces a mountain of risks ahead.

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The iShares 20+ Year Treasury Bond ETF (TLT) ETF continued its remarkable sell-off as market risks continued rising. The stock crashed to a low of $83.30 on Thursday, the lowest point since January 2014. Other Treasuries ETFs like VGLT and BND also plunged.

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US Treasury yields are soaring

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The US is facing numerous headwinds, which explains why the bond market is in a strong sell-off. First, the American government debt has surged in the past few months. It now sits at over $33.5 trillion and analysts expect that it will hit $34 trillion in the next few months.

The challenge is that the economy is not growing at a faster pace as the debt crisis continues. Also, the traditional buyers of American bonds are no longer buying. In fact, countries like China, Japan, and Saudi Arabia have started slashing their holdings of American debt.

Therefore, this means that future investors will require higher interest rates for the rising risks of holding these treasuries. Remember, Fitch Ratings slashed the US credit rating recently while S&P downgraded it in 2021. In a recent statement, a former senior official at S&P said:

“Right now the deficit of the general government — which is the federal and the local governments combined — is over 7% of GDP and the government debt is 120% of GDP. At the time, we forecasted that it might get to 100% of GDP, and the government ridiculed us for being too scaremongering,”

The challenge for the US is that government spending is not slowing. Defence spending is expected to top over $1 trillion in the next few years while social security accounts will be depleted by 2032. The US is now spending over $820 billion in interest payments.

Further, there are significant inflation risks. Official numbers shows that inflation stood at 3.6% in September while core CPI fell to 4.3%. Inflation will likely remain above 2%, especially now that the price of crude oil has jumped to $90. As such, the Fed will likely leave rates higher for longer.

TLT ETF stock analysis

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TLT ETF

The weekly chart shows that the TLT ETF stock has crashed by more than 50% from its highest level in March 2020. Along the way, the shares have all plunged below all moving averages.

The stock has dropped below the key support level at $89, the lowest swing in October 2022. Further, the Relative Strength Index (RSI) has moved below the oversold level. Therefore, the iShares 20+ Year Treasury Bond ETF will likely continue falling as sellers target the key support at $79.94, the lowest swing in 2023.

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