Fed Cuts Don't Always Boost Long-Term Bond Prices

When the Federal Reserve cuts interest rates, many people assume that bond prices rise in response. However, this is not always true.

In reality, it's more nuanced. Short-term Treasuries are more closely correlated with the federal funds rate and often do rise, but long-term Treasuries measured by the performance of the iShares 20+ Year Treasury Bond ETF (TLT) may or may not.

Long-term yields reflect inflation expectations, risk premiums, government debt levels, and the direction of the U.S. economy. This means that many moving parts are involved in pricing long bonds.

Using actual historical data from 2023-2026, it's clear that long-term Treasury holders have been hit by higher inflation risk throughout the past three to four years, and that doesn't seem to be changing now.