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

The Federal Reserve's decision to cut interest rates often leads to higher bond prices. However, this is not always the case for long-term Treasuries, measured by the iShares 20+ Year Treasury Bond ETF (NASDAQ: TLT).

Research shows that short-term Treasuries are more closely correlated with the federal funds rate and tend to rise when rates are cut. In contrast, long-term yields reflect economic conditions such as inflation expectations, risk premiums, government debt levels, and the direction of the US economy.

A look at past events demonstrates this nuance. For instance, in December 2023, the Fed signaled cuts were coming soon but had not yet reduced rates. The markets responded by rallying, viewing rate cuts as a normalization of rates following aggressive hiking cycles.

In September-December 2025, the Fed delivered three consecutive 25 bp cuts. The iShares 20+ Year Treasury Bond ETF's price rose significantly in response to these cuts, increasing by 6% in September-October but decreasing by 5% from October-December.