Long-Term Treasuries Defy Expectations After Fed Rate Cuts

Many investors assume that bond prices will rise when the Federal Reserve cuts interest rates. However, this assumption is not always true.

The iShares 20+ Year Treasury Bond ETF (NASDAQ: TLT) is often used to track long-term Treasury yields, which are influenced by economic conditions rather than policy rates.

A closer look at the past few years of Fed rate-cutting cycles shows that long-term Treasuries may not always react as expected.

In December 2023, the Fed signaled cuts were coming soon, and the market rallied. However, in September 2024 to November 2024, a larger-than-expected half-point cut led to higher inflation, which resulted in higher long-term yields.

The market's reaction suggests that long-term Treasuries are more heavily influenced by economic conditions than policy rates.