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iShares 20+ Year Treasury Bond ETF, TLT…Long Trading Set-Up

On Tuesday the Fed Powell will discuss US monetary policy and on Weds will announce whether he is keeping interest rates on hold or dropping them. In July Fed Powell lowered interest rates for the first time in a decade. Wall Street is expecting the same on Weds, pricing in an 86% chance of a quarter-basis point cut.  If Fed Powell doesn’t continue to cut rates, many on Wall Street (and Trump) are saying the Feds will cause the next recession.

Interest rates and bond prices move in opposite directions. When interest rates fall, bond prices rise and when market interest rates rise, bonds fall (which is known as interest rate risk).

Lets say a treasury bond offers a 5% coupon rate, and one year later, interest rates fall to 4%. The bond will still pay a 5% coupon rate, making it more valuable than new bonds paying just a 4% coupon rate. If you sell the 5% bond before it matures, that bond will be in demand, so that bond will sell at a higher price. But what if interest rates rise from 5% to 6% If you sell the 5% bond, it will be competing with new treasury bonds that offer a 6% coupon rate. That 5% bond will be in less demand and will sell at a lower price.

The iShares 20+ Year Treasury Bond ETF (TLT) is seeks to track the investment results of an index composed of U.S. Treasury bonds with remaining maturities greater than twenty years.

So, if Treasury yields are about to fall, that should mean that bond prices are about to rise. Similarly to the downtrend in place for yields that has yet to be broken, the 20+ Year Treasury Bond ETF (TLT) – despite selling off last week – is still above the uptrend that has been in place for most of the past year.

As Worth pointed out, each time the TLT has come close to that trend line, it has bounced off of it to the upside, and he’s wagering on it happening again.

“The betting is that TLT is going to be good for a bounce. So, I don’t see rates going more than about 1.95%, we’re close enough at this point. I think one wants to start rebuying TLT,” Worth said.

carter tlt chart 3

Source

So based on the monthly chart Cart Worth's trendline is just below the Gap Fill. However, the chart suggests to wait for price to come down to the monthly demand at $131.50 and go long.

This post is my personal opinion. I’m not a financial advisor, this isn't financial advise. Do your own research before making investment decisions.

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