U.S. Treasury Bonds Anticipated to Surge?
In the realm of financial markets, the trajectory of long-term U.S. interest rates and the performance of Treasury bonds have been subjects of intense interest. Here's a roundup of the latest developments.
The federal funds rate, a key short-term benchmark, is expected to decrease gradually from around 4.25%-4.50% in mid-2025 to approximately 3.5%-3.75% by 2027. Correspondingly, the 10-year Treasury yield, an important long-term rate indicator, is forecasted to be around 3.25% by 2027, with expectations in 2025 of yields between 3.5% and 4%.
These rate adjustments are likely to have a significant impact on the iShares 20+ Year Treasury Bond ETF (TLT), which has faced headwinds from rising rates post-2020. With interest rates expected to moderate, potential for stabilization or improvement in TLT’s performance exists, especially if inflation cools and economic growth slows as anticipated.
Mortgage rates are expected to remain relatively high, around 6.2%-6.8% for 30-year mortgages in 2025, reflecting persistent inflation risks and economic conditions.
Economic factors, such as inflation trends, economic growth slowdown, and U.S. debt concerns, will influence rate trajectories and Treasury market performance. The U.S. debt currently stands at over $37 trillion, and the administration's economic package allows for the debt ceiling to rise by an additional $5 trillion.
The trading range for the U.S. 30-year Treasury Bond futures is 110-01 to 127-22. The Fed's benchmark for stable prices is a 2% inflation target, and the latest CPI data showed a 2.7% increase for June. If rising U.S. debt levels lead to selling in the bond market, TLT is likely to head lower. However, if the debt doesn't matter and the U.S. can reduce spending and grow its way out of the debt through economic initiatives, the TLT will likely rally.
For now, long-term interest rates and the TLT remain in a trading range, closer to the lows than the highs since early 2024. The U.S. 30-year Treasury Bond futures have been in a bearish trend since Q1 2020. The September 30-year Treasury Bond futures were trading at 112-02 on June 2, 2025, and were little changed in late July.
Technical support for the U.S. 30-year Treasury Bond futures is at the Q2 2007 low of 104-16. Technical resistance for the U.S. 30-year Treasury Bond futures is at the 127-22 level. Moody's, the credit rating agency, lowered its rating on U.S. sovereign debt, citing the debt level.
The iShares 20+ Year Treasury Bond ETF (TLT) is the most liquid ETF product tracking long-term U.S. interest rates, with over $47.6 billion in assets under management. TLT trades an average of more than 37 million shares daily and charges a 0.15% management fee.
In other news, the President's Big Beautiful Bill passed and was signed into law, while the bond market has not "cracked" as predicted by Jamie Dimon as of July 2025. Meanwhile, Republican opposition to the bill in Congress and the Senate is based on the belief that increasing the debt is a tragic mistake. Moody's downgraded the U.S. sovereign credit rating due to debt concerns.
In conclusion, the outlook for long-term U.S. interest rates suggests a gradual decrease, which could lead to a stabilization or improvement in the performance of long-duration Treasuries if inflation eases and rate cuts materialize. However, elevated debt levels and economic initiatives continue to pose risks.
- Investing in long-duration Treasuries, such as the iShares 20+ Year Treasury Bond ETF (TLT), could potentially benefit from the anticipated decrease in long-term U.S. interest rates, as this could lead to a stabilization or improvement in their performance if inflation eases and rate cuts materialize.
- The performance of businesses that rely on financing through long-term bonds may be positively impacted by the expected decrease in long-term interest rates, as this could make borrowing money at a lower cost, thus increasing their potential for growth and profit.
