Macro
Unexpected high inflation triggers a 9.17% YTD loss for iShares 20+ Year Treasury Bond ETF, challenging Fed rate-cut expectations.
By Barry Stearns
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The iShares 20+ Year Treasury Bond ETF (TLT), a beacon for bond investors in 2023, has faced a sharp downturn in 2024, primarily due to unexpected high inflation data. March's Consumer Price Index (CPI) figures exceeded forecasts, leading to a 1.3% drop in TLT, exacerbating its year-to-date loss to 9.17%. This decline starkly contrasts its previous year's performance, where it attracted $24.8 billion in inflows, the highest among fixed-income ETFs. Investors' initial optimism for a favorable rate environment has been dampened by consecutive robust inflation reports from January through March, challenging the Federal Reserve's rate-cut expectations.
The technical analysis of TLT paints a bearish picture, with its share price falling below key moving averages such as the 5-day, 20-day, and 50-day SMAs. The Moving Average Convergence Divergence (MACD) indicator signals bearishness at -0.94, and the Relative Strength Index (RSI) suggests oversold conditions at 36. Bollinger Bands analysis further supports the bearish outlook, with TLT trading in the lower band, indicating near-term selling pressure. These indicators collectively underscore the prevailing negative sentiment towards long-duration bonds amidst the current inflationary and interest rate environment.
March's Producer Price Index (PPI) showed mixed signals, with a year-on-year increase of 2.1%, the highest in nearly a year, yet the month-on-month increase was less than expected. This mixed PPI data, coupled with the surprising consumer inflation figures, has kept the risks of "high-for-longer" interest rates alive. Following these reports, Treasury yields fell, with the two-year yield dropping 4 basis points to 4.94%. The market's reaction reflects growing uncertainties and adjustments in expectations for the Federal Reserve's interest rate decisions.
Finance GPT
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