Investors in the iShares 20+ Year Treasury Bond ETF TLT are grappling with unexpected challenges as inflation heats up, sending shockwaves through the bond market.

iShares 20+ Year Treasury Bond ETF, once among the most favored bond funds of 2023, has seen a dramatic reversal of fortune, plunging to fresh lows in 2024 following a string of hotter-than-anticipated inflation data releases.

Inflation Fears Spark Sell-Off In TLT

iShares 20+ Year Treasury Bond ETF, like many bond funds, witnessed a sharp decline after the release of March’s Consumer Price Index, which surpassed expectations.

The interest rate-sensitive ETF dropped 1.3%, contributing to its year-to-date decline, now standing at 9.17%. This marked a stark contrast to its performance last year when it garnered significant investor interest, attracting a staggering $24.8 billion in inflows, the most of any fixed-income ETF.

Also Read: Producer Inflation Shows Mixed Signals In March, Keeps Risks Of High-For-Longer Interest Rates Alive

Reassessing Rate Expectations

At the onset of 2024, investors were optimistic about a favorable rate environment, betting on the Federal Reserve’s ability to tame inflation and drive down rates.

However, a series of robust inflation reports from January to March seemed to have dashed those hopes. With the core Consumer Price Index surging month-over-month, concerns about persistent inflationary pressures resurfaced, prompting a reassessment of rate-cut expectations.

Technical Analysis: TLT’s Downtrend

The technical setup for iShares 20+ Year Treasury Bond ETF reflected the prevailing bearish sentiment.

Chart: Benzinga Pro

With the ETF’s share price below its key moving averages, including the 5-day, 20-day, and 50-day SMAs, the current trend is strongly bearish.

Chart: Benzinga Pro

The Moving Average Convergence Divergence (MACD) indicator also gave a bearish signal at -0.94, and the Relative Strength Index (RSI) indicated oversold conditions at 36.

Bollinger Bands analysis reinforced the bearish outlook, with iShares 20+ Year Treasury Bond ETF trading in the lower band, suggesting selling pressure in the near term.

Silver Linings

Despite the gloomy outlook for iShares 20+ Year Treasury Bond ETF, there are potential silver linings. While elevated inflation readings in the first quarter are concerning, they may not necessarily indicate a return to persistently high inflation. Furthermore, even if inflation remains moderately elevated, it could still fall below previous peaks in 2021 and 2022.

The iShares 20+ Year Treasury Bond ETF faces significant headwinds amid mounting inflationary pressures and shifting rate expectations.

As investors navigate this challenging landscape, the technical indicators underscored the current downtrend in the iShares 20+ Year Treasury Bond ETF, signaling caution for those considering exposure to long-duration bonds.

With inflation dynamics evolving and uncertainty prevailing, the future trajectory of the ETF remained uncertain, leaving investors to closely monitor economic data and Fed policy shifts for further insights.

Read Next: Top 10 US High-Yield Corporate Bonds With Returns Over 20% In April 2024

Photo: Rzoze19 via Shutterstock