Here’s why the VGLT and TLT ETFs could slump further soon
The Vanguard Long-Term Treasury ETF (VGLT) and the iShares 20+ Year Treasury Bond (TLT) ETFs crashed hard this week as short and long-term US Treasury yields surged to a two-year high.
The TLT ETF dropped to $86, down by over 14% from its August 2024 highs, and is at the lowest point since May 2. Similarly, the VGLT fund has crashed to $54.48, also its lowest point since May 29th. The two popular funds have continued to underperform the market as risks rise.
US bond yields are soaring
The main reason why the TLT and the VGLT ETFs have plunged is that US treasury yields have soared, meaning that their prices have slumped. Bond prices have an inverse correlation with yields.
The 30-year US government bond yield surged to 4.92% on Wednesday, its highest level since November 2 and 26% above the lowest level in September last year. Similarly, the ten and five-year yield have continued rising.
There are signs that the 30-year yield has formed an inverse head and shoulders pattern, a popular bullish sign in the market. This pattern is made up of a head, two shoulders, and a neckline, and often leads to more gains.
Worse, the 30-year formed a golden cross pattern as the 50-day and 200-day Exponential Moving Averages (EMA) flipped each other. This cross is one of the most bullish patterns in the market.
The 30-year yield’s Relative Strength Index (RSI) and the MACD have continued rising, a sign that there is momentum. Therefore, there is a risk that it will rise to the 2023 high of 5.17%,
Why US yields are surging
US bond yields are soaring after a series of positive economic data pointed to higher interest rates for longer.
Data by the Bureau of Labor Statistics (BLS) showed that the number of job vacancies in the US jumped to a six-month high of over 8 million. That is a sign that the labor market is still strong.
At the same time, there are risks that the US inflation will remain strong for a while. Last month’s data showed that the headline Consumer Price Index (CPI) rose from 2.4% in October to 2.7% in November. As a result, Fed officials now expect US inflation to reach the 2% target later in 2026.
Some of Donald Trump’s policies are highly inflationary if they work out well. For example, a high tariff on imported goods would lead to a big price increase. The same is true of other policies, such as mass deportations and tax cuts.
Looking ahead, the next important catalyst for the TLT and VGLT ETFs will be the upcoming US nonfarm payrolls (NFP) data. These numbers will provide more data about the state of the economy and guidance on what to expect from the Fed.
Read more: VGLT and TLT ETFs retreat; concerns of a black swan event rise
TLT ETF analysis
The TLT and the VGLT ETF always move in the same direction since they track the same assets. The daily chart shows that the TLT fund has been in a strong downtrend after peaking at $100 in September last year.
It has formed a death cross pattern as the 200-day and 50-day moving averages crossed each other recently.
The stock has dropped below the important support level of $88.9, its lowest level since November 8. The MACD and the Relative Strength Index (RSI) have also pointed downwards.
Therefore, the path of least resistance is downward, with the next point to watch being $84.7, its lowest swing on April 24. A drop below that level will lead to more downside, possibly to $78.55, its lowest level in October last year. This TLT forecast is in line with our last outlook. The VGLT ETF will also likely follow the same direction.
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