TLT: A Strategic Play As Rate Cuts Loom In A Debt-Heavy Market

seekingalpha10-29

Interest rates may have less impact on inflation than is commonly believed; for economic insights, the focus should be on bank credit and lending data.Recession indicators include rising unemployment,...

Source Link

Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.

Comments

We need your insight to fill this gap

Leave a comment

{"i18n":{"language":"en_US"},"isChannel":false,"data":{"share":"https://ttm.financial/m/news/2479431516?lang=en_US&edition=fundamental","thumbnail":"https://static.seekingalpha.com/cdn/s3/uploads/getty_images/479926897/image_479926897.jpg","is_english":true,"pubTime":"2024-10-29 00:36","share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","id":"2479431516","market":"sg","top_or_hot":-1,"title":"TLT: A Strategic Play As Rate Cuts Loom In A Debt-Heavy Market","media":"seekingalpha","content":"<div>\n<p>Interest rates may have less impact on inflation than is commonly believed; for economic insights, the focus should be on bank credit and lending data.Recession indicators include rising unemployment,...</p>\n\n<a href=\"https://seekingalpha.com/article/4730126-tlt-a-strategic-play-as-rate-cuts-loom-in-a-debt-heavy-market\">Source Link</a>\n\n</div>\n","source":"seekingalpha","html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>TLT: A Strategic Play As Rate Cuts Loom In A Debt-Heavy Market</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nTLT: A Strategic Play As Rate Cuts Loom In A Debt-Heavy Market\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-10-29 00:36 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4730126-tlt-a-strategic-play-as-rate-cuts-loom-in-a-debt-heavy-market><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Interest rates may have less impact on inflation than is commonly believed; for economic insights, the focus should be on bank credit and lending data.Recession indicators include rising unemployment,...</p>\n\n<a href=\"https://seekingalpha.com/article/4730126-tlt-a-strategic-play-as-rate-cuts-loom-in-a-debt-heavy-market\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"TLT","symbol_name":"20+年以上美国国债ETF-iShares","start_time":0,"source_url":"https://seekingalpha.com/article/4730126-tlt-a-strategic-play-as-rate-cuts-loom-in-a-debt-heavy-market","article_id":"2479431516","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/479926897/image_479926897.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2479431516","pubTimestamp":1730133364,"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"Interest rates may have less impact on inflation than is commonly believed; for economic insights, the focus should be on bank credit and lending data.Recession indicators include rising unemployment,","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"TLT":"20+年以上美国国债ETF-iShares","BK4585":"ETF&股票定投概念","BK4588":"碎股","BK4581":"高盛持仓"},"translate_title":"TLT：负债累累的市场中降息迫在眉睫的战略举措","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"TLT":0.9},"content_text":"Interest rates may have less impact on inflation than is commonly believed; for economic insights, the focus should be on bank credit and lending data.Recession indicators include rising unemployment, softening manufacturing hours, and downward payroll revisions, despite strong GDP growth due to high government deficit spending.The outlook for the bond market in the short to medium term is positive due to a possible recession and what we deem to be restrictive interest rates.Caution is advised for long-term investors due to risks like financial repression, which could negatively impact long-term bondholders.   larryhwThe iShares 20+ Year Treasury Bond ETF (NASDAQ:TLT) is one of the leading long-term bond ETFs, with a weighted average duration of 25.67 years and currently an SEC yield (after expenses) of 4.40%. The index has had a rough couple of years since 2020, when it peaked at around $160 during the height of the financial crisis in March 2020, and finally closed all the way down to $79.5 in October last year, falling in excess of 50%. In 2022, this selloff actually broke a record and at one point was the worst bond selloff since 1788. And to this day, this selloff in the bond market remains the longest and steepest selloff in several decades, with the index still down about 42.4% from its peak, despite its usual safe-haven status. In this article, we explain why there may currently be some upward movement in long-term Treasuries and why we think long-term bond yields are likely to fall in the short to medium term due to a lack of inflationary momentum, a softening labor market and higher debt levels in the economy. TradingView, Wright's ResearchThe Interest Rate Paradox It is generally believed that inflation is one of the biggest factors influencing/determining interest rates, especially if we listen to the Federal Reserve. However, if we look at how interest rates fell, we see that by the time the Federal Reserve started raising interest rates, inflation had already fallen significantly. When the Federal Reserve finally finished raising interest rates above 5%, annualized inflation was already at 3.05%. Today we have an annualized CPI of 2.40% for September 2024, but we may wonder whether it was the Fed that brought inflation down, or whether inflation was actually transitory or the result of factors other than interest rates. We generally believe that interest rates have less influence than is generally believed. We think investors should focus primarily on factors such as the creation of bank credit, since that is how money is created, according to the Bank of England. Federal Reserve (FRED)Investors may have to wonder if interest rates matter if no one in the economy is actually extending credit. After all, after 2008, when the Fed first cut interest rates to 0% and applied QE, we did not see the hyperinflation that many economists were worried about. Moreover, in 2020, the Fed lowered reserve requirements to 0% and also lowered interest rates to 0%, and again we did not see the hyperinflation that would be expected if we followed old theories such as fractional reserve banking and the money multiplier, which have essentially been proven wrong. In other words, the amount of credit in the economy is a factor we should focus heavily on. But if we look at statistics like M2 or bank deposits, we don't see potentially inflationary signals popping up like in 2021. On the contrary, we still see a slightly contracting environment in all the credit data we looked at. Federal Reserve (FRED)The only two places where we continue to see inflation are the service sector, which has proven to be stickier, and gold, which is usually a leading indicator and has risen about 33% YTD. As a side note, we believe gold is also rising because certain countries are moving away from dependence on the dollar, following actions taken by the United States in recent years that have virtually used the dollar as a weapon at the geopolitical level. We also see gold perhaps reflecting monetary inflation rather than consumer price inflation, following the lead of other asset classes such as equities and bitcoin, which have risen sharply and are trading near or at all-time highs. Looking at the other parts of the commodity sector, such as oil and copper, have remained relatively subdued and the commodity index as a whole has remained virtually flat. We also like to look at alternative indices, such as the Truflation index, which is updated daily and is based on more than 13 million individual data points. Here we can also see that, after the initial inflation in 2022, which was likely underestimated by the CPI calculated by the BLS, inflation has essentially returned to the 2% level and shows no meaningful increase in real-time inflation above 2%. TruflationSomething we should also keep an eye on is the progression of GDP growth, as they have historically had a pretty good positive correlation. This was brought to our attention by legendary investor Stanley Druckenmiller, who remembered going short in 10-year Treasuries after the last Fed meeting, when they were trading at a yield of about 3.70%. He believes that 10-year yields should trade roughly where GDP growth trades, which is still growing strongly at an annualized rate of 5.7%, according to the latest second-quarter figures. Federal Reserve (FRED)A Possible Recession The main reason we are bullish on TLT in the short to medium term has to do with the fact that it has shown to perform well in a recessionary/deflationary environment, or in general, when interest rates are falling. In the labor market, we see some softening, with unemployment rising to 4.1%, with the Sahm Rule also triggered at 0.50%. We also see the average number of hours worked per week in manufacturing declining, which was also a recession signal earlier. Moreover, although nonfarm payrolls have performed reasonably well in the past, we would like to point out that almost all revisions in the past 9 months have been downward, which is another signal that a recession may be near. Federal Reserve (FRED)One of the main reasons we think there has not yet been a recession, we believe, has to do with the current size of the deficit, which is currently more than 6.3% of GDP. The deficit for 2024 is estimated to be about $1.83 trillion, which means that the U.S. government spends virtually most of it during times when there are no economic problems yet. It would also partly explain why GDP growth in recent quarters is still quite strong. Along those lines, we might also wonder where the deficit will go when the U.S. finally enters a recession, since interest paid on the debt has already exceeded $1.10 trillion as of the second quarter. Looking at the yield curve, we also see that the 2s10s spread is finally starting to turn positive again, which means that along with a weakening of the labor market, a recession appears to be near. Federal Reserve (FRED)When looking at the yield curve, it is also important to keep in mind that the U.S. Treasury has recently been issuing more debt on the short side of the yield curve, while on the long side of the yield curve it is buying back debt to the tune of $50 billion. Interest rates may also be more restrictive than some think, although not as restrictive as they were in the 1980s. This is not only because the national debt stands at 120% of GDP, which is the highest since World War II, but also because private debt in the United States is near its highest level ever. While many economists and analysts look almost exclusively at the level of government debt, we believe the level of private debt is just as important, if not more important. Currently, private debt is about 216.50%, which means that the total debt to GDP ratio for the United States is currently over 335%. So, in our opinion, we live in a world with extremely high levels of debt in both the public and private sectors, which is one of the reasons why interest rates at current levels may need to come down. Federal Reserve (FRED)Buying The Most Disdained Asset Class On a technical and relative basis, we see that TLT is testing some resistance bands when compared to different asset classes such as equities. While stocks have certainly outperformed bonds in general, they have mostly done so within reasonable limits. And if we compare the total return index for the S&P 500 to TLT, we see that the ratio is currently at oversold levels not seen since 2007. TradingView, Wright's ResearchEven compared to gold, the long-term bond has shown an underperformance not seen since 2007. If we were able to extend this timeline and look at the total return index for bonds, we would see a trend where long-term bonds compared to gold have been the cheapest since the 1980s. TradingView, Wright's ResearchYet, we also see some downsides to our thesis. As mentioned earlier, the United States appears to be at very high levels in terms of both public and private debt. We believe that this debt will eventually have to be addressed in the long run and will probably be inflated away, just as the United States inflated away its debt after World War II. They did this by keeping interest rates low and inflation above target without it getting out of control. In this way, they were successful and were able to reduce their debt from about 120%, which is where we are today, to about 32% in the mid-1970s. This way, by keeping interest rates low and inflation above target, they engaged in financial repression, which would ultimately be bad for bondholders, and today especially bad for long-term bondholders. The Bottom Line While our outlook remains positive for long-term bonds, we take a slightly more cautious view due to a lack of price validation over the past year and assign it as a potential Buy, compared to our Strong Buy from last year.  Overall, there is still a potential recession with a weakening labor market, along with a significant drop in inflation and a lack of inflationary leading indicators, which leads us to believe there is still a lot of alpha to be gained by investing in long-term bonds on a short- to medium-term investment horizon. Still, we are more cautious about the asset class given the risks such as financial repression, which can negatively impact TLT for those looking to invest long-term.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"1","news_tag":"Economic Data,analysis","news_rank":0,"symbols":[],"gpt_button":0},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.1","shortVersion":"4.29.1","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2479431516"}