TLT ETF stock nears a death cross as the bond turmoil escalates

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on Apr 16, 2024
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  • The iShares 20+ Year Treasury Bond ETF is still seeing inflows.
  • Long-term US Treasury yields have jumped to a multi-month high.
  • The stock is about to form a death cross.

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The iShares 20+ Year Treasury Bond ETF (TLT) ETF stock price continued its freefall this week as risks to the American economy continued rising. The fund also plunged to its lowest point since November 2023 as hopes of swift Federal Reserve rate cuts faded. It retreated to $88 in the pre-market session to $88.50, much lower than last December’s high of $99.65.

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US Treasury yields are rising

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The TLT ETF has been in a strong freefall for two main reasons. First, there are concerns about the surging US public debt as government spending continues. The total public debt is growing by billions of dollars each day and currently stands at over $34.6 trillion. 

Worse, the government is adding over $1 trillion of debt every 110 days, a situation that will continue as the deficit spending accelerates. The cost of all parts of the federal government are soaring, with social security, defense, and medicare expected to rise in the coming years.

Most importantly, the gross and net interest that the government pays on its debt is rising. If the trend continues, this amount will get to almost $1 trillion this year. 

All this is happening at a time when many of the biggest holders of US debt are paring back their purchases. China has aggressively reduced its holdings and is now focusing on precious metals like gold. 

Many experts have continued warning about the precarious state of the US economy and the debt load. The CBO estimates that the total debt load will surge to over $50 trillion in the next decade. In his letter to shareholders, Jamie Dimon of JPMorgan said:

“The deficit for the next three years is now estimated to be $1.4 trillion to $1.8 trillion per year, which is also an extraordinary number, with no end in sight.”

Therefore, these risks explain why investors are dumping long-term US bonds, a situation that has pushed treasury yields to the highest level in months. 

Federal Reserve rate cuts 

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The other reason why the TLT ETF has plunged is the fading hope that the Federal Reserve will start cutting interest rates in June.

Most economists have ruled out this scenario because of the rising inflation in the United States. The headline Consumer Price Index (CPI) has jumped to 3.5% while the core CPI is almost double the Fed’s target of 2.0%. 

Other economic metrics show that the economy is doing well. The unemployment rate has dropped to 3.8% while the economy has added millions of jobs in the past few months. Further data showed that the retail sales have done well in March.

As a result, the consensus is that the Fed does not have the urgency to start cutting rates. Raphael Bostic, the head of the Atlanta Fed, hinted that the Fed will only start cutting rates in the fourth quarter of the year.

The TLT ETF does well when the Fed is either slashing interest rates or when inflation is in a downward trend. That explains why the stock jumped from $80.91 in November to over $99 in December as inflation was falling.

TLT ETF is still seeing inflows

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TLT ETF

TLT ETF chart by TradingView

The performance of the iShares 20+ Year Treasury Bond ETF is still seeing inflows even as the stock retreats. Data shows that the fund has added over $24 billion since January 2023, bringing the total assets to more than $46 billion. It has added more than $166 million this month alone.

Still, there are signs that the ETF has more downside to go. As shown above, the fund has crashed below the lower side of the descending channel shown in black. It is also nearing a death cross as the 200-day and 50-day moving averages near a crossover. 

Therefore, the outlook for the fund is still bearish, with the next point to watch being at $80.90, its lowest swing in October last year. That price is about 8.45% below the current level.

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