Why I think TLT is still a buy
Updated
The Fed fund rate has dropped 0.5%. Why hasn't bonds went up?
-The fear is inflation will rise again and thus requiring the Federal Reserve to raise interest rates to combat inflation. Have we seen this before?
-News from 9/18/2007
nbcnews.com/id/wbna20837026
The Federal Reserve Tuesday surprised financial markets with an aggressive half-point cut in a key lending rate, lowering borrowing costs for businesses and consumers in response to a housing downturn that threatens to spread to the broader economy.
Economic growth was moderate during the first half of the year, but the tightening of credit conditions has the potential to intensify the housing correction and to restrain economic growth more generally. Today’s action is intended to help forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets and to promote moderate growth over time.
Readings on core inflation have improved modestly this year. However, the Committee judges that some inflation risks remain, and it will continue to monitor inflation developments carefully.
-This is not to say that there isn't a possibility that inflation will rise, but it is notable that the fear was similar. The Fed has stated that they intend to lower interest rates to between 3-3.5%. We are currently at 5%.
" FOMC policymakers' own estimates of where short-term rates will be in December 2025 is, on average, a little more than 3%, with a median forecast of 3.4%. That forecast was updated at the FOMC's last meeting on September 18."
-Assuming the Fed is telling the truth and plans to lower rates to 3-3.5%. Bonds should reflect that. Sooner or later..
-Showing how we can use 1-US10Y as a base to understand TLT on a longer time basis as TLT only goes back to 2002. Even if TLT is longer term bonds vs 10y yields
-Yields trend with fed fund rates, but it can front run or lag as it is still based on the market's opinion on what the future holds.
-From a technical perspective. Chart patterns of yields closely resemble 1982.
-2024 TLT vs 1982 1-US10Y
-Bonds and stocks are not 100% correlated, but in the event of a stock crash - the Fed will lower interest rates to help the economy and thus increasing bonds. Nasdaq looks familiar technically as sudden sharp downward move and then met with an uptrend into liquidity but met with exhaustion candles. No one knows if/when a crash will come, but the takeaway is that there are many indicators/fundamentals/chart patterns/whatever have you that are lining up at the same time.
-The fear is inflation will rise again and thus requiring the Federal Reserve to raise interest rates to combat inflation. Have we seen this before?
-News from 9/18/2007
nbcnews.com/id/wbna20837026
The Federal Reserve Tuesday surprised financial markets with an aggressive half-point cut in a key lending rate, lowering borrowing costs for businesses and consumers in response to a housing downturn that threatens to spread to the broader economy.
Economic growth was moderate during the first half of the year, but the tightening of credit conditions has the potential to intensify the housing correction and to restrain economic growth more generally. Today’s action is intended to help forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets and to promote moderate growth over time.
Readings on core inflation have improved modestly this year. However, the Committee judges that some inflation risks remain, and it will continue to monitor inflation developments carefully.
-This is not to say that there isn't a possibility that inflation will rise, but it is notable that the fear was similar. The Fed has stated that they intend to lower interest rates to between 3-3.5%. We are currently at 5%.
" FOMC policymakers' own estimates of where short-term rates will be in December 2025 is, on average, a little more than 3%, with a median forecast of 3.4%. That forecast was updated at the FOMC's last meeting on September 18."
-Assuming the Fed is telling the truth and plans to lower rates to 3-3.5%. Bonds should reflect that. Sooner or later..
-Showing how we can use 1-US10Y as a base to understand TLT on a longer time basis as TLT only goes back to 2002. Even if TLT is longer term bonds vs 10y yields
-Yields trend with fed fund rates, but it can front run or lag as it is still based on the market's opinion on what the future holds.
-From a technical perspective. Chart patterns of yields closely resemble 1982.
-2024 TLT vs 1982 1-US10Y
-Bonds and stocks are not 100% correlated, but in the event of a stock crash - the Fed will lower interest rates to help the economy and thus increasing bonds. Nasdaq looks familiar technically as sudden sharp downward move and then met with an uptrend into liquidity but met with exhaustion candles. No one knows if/when a crash will come, but the takeaway is that there are many indicators/fundamentals/chart patterns/whatever have you that are lining up at the same time.
Note
TLT / Inverse TLT - This is a key area to watch
Trade active
Reversal candle on the 10year and 30year
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