Treasury Bonds Have Lost 50% In 5 Years, Yet Reversal Signals Emerge In Q1: Could Tariffs Actually Push TLT Higher?

For most of the past five years, bonds have been in a brutal bear market.

Since peaking on March 9, 2020, the iShares 20+ Year Treasury Bond ETF TLT — the world’s largest fixed-income ETF — has lost nearly 50%, battered by tight monetary policy, strong economic growth and persistent inflation.

Yet, fresh reversal signals have started emerging as the first quarter of 2025 draws close.

The gauge tracking longer-dated Treasury securities jumped 4.2% in the first quarter. In contrast, the SPDR S&P 500 ETF Trust SPY, a benchmark for U.S. stocks, fell 5% over the same period.

That 9% performance gap favoring bonds over stocks is the largest in a single quarter since April 2020.

TLT Notched Strongest Outperformance Over S&P 500 Since Q1 2020

Why Are Bonds Suddenly Back?

Kent Thune, a CFP and investment advisor for ETF.com, believes the answer may lie in the shifting consumer confidence.

"Weren't bond prices supposed to fall amid the inflationary potential of tariffs, tax cuts and deportations? What explains TLT's unexpected performance? The short answer is consumer confidence," Thune said.

Indeed, consumer sentiment is deteriorating rapidly. This signals that households may begin to reduce spending. That’s a troubling sign for a U.S. economy where consumption accounts for 70% of gross domestic product.

The University of Michigan’s final consumer sentiment index for March dropped sharply to 57.0, down from 64.7 in February. This is the lowest reading since November 2022.

"Consumer sentiment confirmed its early month reading and fell for the third straight month, plummeting 12% from February," said Joanne Hsu, director of the university's Surveys of Consumers.

This souring sentiment comes as longer-term inflation expectations—shaping behaviors like wage negotiations and mortgage demand—jumped to 4.1%, the highest since 1993.

According to the CME FedWatch tool, traders are pricing in a 75% chance that the Federal Reserve will cut rates by at least 25 basis points at its June meeting.

The Atlanta’s Fed GDPNow model estimates a 2.8% economic contraction for the year’s first quarter.

These signs of economic strain have driven investors toward bonds in a flight to safety, even as inflation concerns continue to cloud the outlook.

Not Everyone Is Buying The Recession Narrative

What if the U.S. economy avoids a recession altogether and remains resilient? After all, on Wall Street, not everyone seems rattled by soft consumer sentiment data or slowing GDP estimates.

Even Federal Reserve Chair Jerome Powell dismissed the University of Michigan's sentiment survey as an "outlier."

Veteran strategist Ed Yardeni remains skeptical the Fed will cut rates anytime soon.

"We've been predicting none-and-done for Fed rate-cutting this year because of better-than-expected GDP growth," Yardeni said. "Now we are predicting that the Fed won't be able to ease even if the economy stagnates because higher inflation will force the Fed to stay put. The Fed Put will remain on hold."

Yardeni expects the 10-year Treasury yield to stay anchored in the 4.25%-4.75% range. That would likely cap further upside for long-duration bonds. If yields remain flat—or rise—bond performance could turn negative again.

Bravos Research highlighted in an email that Treasury yields are back to where they were in late 2022, suggesting relative stability rather than turmoil.

"Over the last few months, bond yields have been essentially flat, not reflecting major recession concerns from bond investors," the firm said.

That's a stark contrast from past recessions like 2008 and 2001, when yields plunged sharply in anticipation of economic pain. Today, the bond market is projecting calm, not crisis.

Labor market data supports that outlook. Total U.S. employment continues to grow steadily—an unusual pattern for a pre-recession environment. "The stock market's performance is generally tied to the strength of the job market," Bravos said. "A deterioration in employment would make us more worried about a significant correction in the S&P 500, similar to 2001 and 2008. But we're not seeing evidence of that right now."

With no clear signs of labor weakness or financial stress, Bravos Research views the recent stock pullback not as a warning shot but as a tactical buying opportunity.

"Given we don't believe a recession will happen in 2025, we think by year-end this will have proven to be a buying opportunity," the firm said.

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