TLT: A Big Bond ETF at a Pivotal Juncture

The iShares 20+ Year Treasury Bond ETF (NYSEArca: TLT) has, for most of this year, been a solid performer. Of course, much of that performance is tied to the Federal Reserve not yet raising interest rates, something many fixed income traders are betting will change in December.

Investors may be attracted to the cheap valuations and wider yield premiums that these bonds offer over safe-haven government bonds after benchmark yields on 10-year Treasuries dipped back toward all-time lows. Moreover, the rebound in energy prices could have reassured investor fears of a potential defaults in the energy space.

Related: If Rates Rise, Look to These Junk Bond ETFs

Add to that, Treasurys have been buoyed by a Federal Reserve that has consistently passed on raising interest rates this year. There are some obvious fundamental factors that bode well for U.S. debt ETFs, namely a slew of negative interest rate policies throughout the developed world, which make the low yields on U.S. bonds look all the more attractive.

TLT has been a popular Treasury bond play for yield generation over the past few years after the Federal Reserve implemented near-zero interest rates and a robust bond purchasing program. However, TLT comes with a 17.72 year duration – a 1% increase in interest rates would translate to about a 17.72% decline in the fund’s price.

“From a trading standpoint, though, treasury bonds are likely to bounce. TLT has completed a “square root” correction, a 1.618 extension and measured moves… one could possibly count 5 waves down as well,” according to See It Market.