The iShares 20-Year Treasury Bond ETF (TLT) has been basing for quite some time. Notably, there is considerable volume at current levels where buyers and sellers are evenly matched. If TLT breaks above this consolidation range, we could see a sharp move higher, highlights Lance Roberts, editor of Bull Bear Report.
One thing to watch is the price compression that is currently occurring. While many argue that “interest rates must go higher,” the reality is likely the opposite. With economic growth slowing and inflation falling, we are likely to see rates lower in the future. That is what the current price compression is telling us as well.
iShares 20+ Year Treasury Bond ETF (TLT)
Furthermore, the potential for a rate decline increases when considering that the Federal Reserve is about to start lowering rates again. Historically, whenever the Fed has hiked rates, the eventual outcome was a recession. While that outcome was not immediate, it eventually occurred. That recessionary pressure caused long-term rates to fall. With employment weakening and economic data slowing, the risk of a recession from current growth levels is not a far-fetched idea.
Bonds have been dead money for investors from a capital appreciation perspective. However, bonds in a portfolio have continued to provide a hedge against market volatility and a decent income stream to supplement portfolio returns while protecting capital. The current technical setup is improving and looks like it will provide a better appreciation opportunity in the future for those who can be patient and wait.
Recommended Action: Buy TLT.
