TLT Keeps Sinking, Investors Keep Buying $60B ETF

Investors are using the recent pullback in the iShares 20+ Year Treasury Bond ETF (TLT) the biggest US Treasuries exchange-traded fund,to buy.

Last week $1.7 billion has flowed into the $60.3 billion fund, bringing its year-to-date inflows up to $11.5 billion.

The price of the ETF has fallen nearly 9% since it reached its 2024 high on Sept. 16—two days before the Fed slashed the federal funds rate by 50 basis points.

TLT has now given up nearly all of its summer rally and the ETF is down 3.7% since the start of the year.

A lot has changed since TLT put in its high in September. The U.S. economy seems to be on firmer footing: nonfarm payrolls expanded by a larger-than-expected 254,000 last month and Q3 GDP is on track to grow by 3.4% (according to the Atlanta Fed’s GDPNow model).

Stronger economic growth could mean fewer Fed rate cuts and potential upward pressure on consumer prices. Hence, the jump in the long-term interest rates and decline in TLT’s price.

The yield on the 30-year Treasury bond was last trading around 4.49%, the highest level since July and up from 3.93% on September 16.

Still, rather than panicking, ETF investors seem to be using the rise in long-term interest rates and fall in TLT’s price as a buying opportunity.

In October, the fund has seen inflows in all but four trading sessions. Unlike in 2021 and 2022, investors don’t seem to be concerned with rates spiking dramatically higher.

Even if the economy remains strong and rates hold above 4% for now, it might make sense to allocate to TLT as a hedge against the economy turning down at some later point.

On the other hand, there has been some chatter about the upcoming presidential election being a risk for long-term bonds. If the new president enacts policies that reignite inflation, that could spell bad news for TLT.

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