Bond market at 3 year low TLT ETF

The U.S. treasury yields have spiked up recently, especially since the last Fed meeting where rates are expected to remain higher for longer, and the Fed has projected that they will need to hike one more time if needed.

Treasury yields as of Friday prior to market open

US 10 year yield

The US 10 year treasury yield hit a high of 4.68% as of Thursday September 28, but has since pullback after the latest PCE inflation data on Friday. 

The Federal Reserve's preferred inflation gauge, core PCE, rose 3.9% Y/Y in August, the first time in two years that the measure has dropped below 4%, the Commerce Department said Friday. That's progress toward, but still short of, the Fed's 2% goal.

Core PCE, which strips out the volatile energy and food sectors, giving the central bank a better sense of underlying inflation trends.

The progress on cooling core PCE inflation may help the doves on the Federal Open Market Committee convince their peers to halt rate hikes. Traders give a 84.6% probability to keeping rates unchanged at the Fed's November meeting, up from an 80.7% probability on Thursday, according to the CME FedWatch tool.

Futures of the three major U.S. stock averages all picked up steam. S&P futures rose 0.7%, Nasdaq +1.0%, Dow +0.6%. The 10-year Treasury yield dropped 5 basis points to 4.53%.

Meanwhile, personal spending growth slowed to 0.4% M/M in August from 0.9% in July. At the same time, personal income increased to 0.4% M/M from 0.2% in the previous month.

•PCE Price Index: +0.4% M/M vs. +0.5% expected and +0.2% prior.

•+3.5% Y/Y vs. +3.5% expected and +3.3% prior.

•Core PCE Price Index: +0.1% M/M vs. +0.2% expected and +0.2% prior.

•+3.9% Y/Y vs. +3.9% expected and +4.3% prior (revised from +4.2%).

•Personal Income: +0.4% M/M vs.+0.4 % expected and +0.2% in July.

•Personal Spending: +0.4%, vs. +0.5% expected and +0.9% prior (revised from +0.8%), the U.S. Commerce Department said Friday.

TLT at levels seen in 2011

The iShares 20+ Year Treasury Bond ETF (TLT) currently trades around $89.

TLT Monthly Charts

The TLT etf, just like the bond markets have taken a beating and are down since March 2020, and will be facing 3 consecutive down years. Following the better than expected inflation data, traders are now pricing in a 15% chance of another 25 bp hike in November & a 29.7% chance of 25 bp hike (5.5%~5.75%) in December and 50 bp hike (5.75%~6.0%) in December having a slim chance of 3.2%.

It is very likely that there will potential upside in treasury bonds vs lesser downside risk from this point on.

TLT likely to have bottomed out 

TLT trades at levels last seen in 2011

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@TigerStars