20-yr US Treasuries (TMF)

Key Updates

TMF advanced 2.04% to $35.97 since the June 11 report, extending the recovery rally to approximately 7.5% over six trading sessions and 10.61% over the trailing month. This continued rebound confirms the decisive reversal flagged in the prior note, as long-duration Treasury prices recover from the late-May yield peak (30-year touched 5.20%). The sole incremental news item—Invesco's expansion of its BulletShares Treasury ETF suite—underscores persistent institutional demand for Treasury exposure, though it does not alter the fundamental rate outlook.

Current Trend

The intermediate trend has shifted positive. TMF has posted consecutive gains over 1-day (+0.67%), 5-day (+5.21%), and 1-month (+10.61%) horizons, reversing the steep drawdown that pushed the fund to -6.13% over six months and -3.62% year-to-date. The YTD deficit is now narrowing, but the fund remains underwater for 2026, indicating that the recovery is still repairing prior damage rather than breaking into new structural uptrend. The 6-month and YTD performance figures define the broader resistance zone created by earlier liquidation levels.

Investment Thesis

The investment thesis rests on the directional outlook for 20+ year Treasury yields. TMF is a 3x leveraged vehicle; its net asset value is hypersensitive to the long end of the curve. Bullish positioning requires a sustained decline in 30-year and 10-year yields—whether via disinflation, flight-to-safety flows, or Federal Reserve rate cuts. Bearish positioning is warranted if the "higher-for-longer" regime persists, driven by structural deficits, energy-price shocks, or a shift in Fed policy toward tightening. The current recovery appears driven by a tactical retracement in yields after an extreme spike, not yet by a fundamental dovish pivot.

Thesis Status

The thesis remains in a tactical recovery phase. The June 11 report identified a reversal as yields retreated from multi-decade highs; the subsequent 2.04% gain validates that call. However, the fundamental drivers of the original selloff—elevated 30-year yields (5.20% in early June), sticky inflation expectations, and geopolitical risk premia—have not been eliminated. The status is: short-term trend improved, medium-term thesis unchanged pending confirmation that 5.20% on the 30-year marked a local maximum in yields.

Key Drivers

Multiple factors are driving volatility in the long-bond complex:

• Yield Peak and Retracement: The 30-year Treasury yield reached 5.20% on June 3, its highest since 2007, before easing slightly. The 10-year yield rose to 4.69%. TMF's recent bounce correlates with this modest yield retracement. Source
• Geopolitical Risk Premium: Oil supply concerns linked to the Iran-Israel conflict and Strait of Hormuz disruptions have added inflation uncertainty. Despite this, the 10-year break-even inflation rate remains anchored at 2.39%, only 10 bps higher since February. Source
• Mortgage Convexity Hedging: Resurgent convexity hedging in the $31 trillion Treasury market is amplifying rate volatility. Goldman Sachs estimates recent hedging flows added interest-rate exposure equivalent to roughly $40 billion in 10-year Treasury purchases, exacerbating both selloffs and potential snap-backs. Source
• Fiscal and Policy Uncertainty: Market expectations have shifted from anticipated rate cuts to potential hikes by December, with President Trump moderating demands for aggressive easing. Kevin Warsh's nomination as Federal Reserve Chair adds policy uncertainty. Source
• Institutional Product Innovation: Invesco launched five new BulletShares Treasury Bond ETFs (2027–2031), expanding its $27.6 billion platform. While this reflects robust demand for Treasury vehicles, it does not directly impact long-duration supply/demand dynamics. Source

Technical Analysis

TMF's price action is constructive in the near term. The fund has cleared the $35.25 level from the June 11 report and is approaching the $36.00 psychological level. Immediate support is forming near $35.00, reinforced by the 5-day moving average trajectory implicit in the +5.21% weekly return. Resistance is expected in the $36.50–$37.00 zone, which corresponds to the late-May consolidation area prior to the last leg lower. A sustained break above $37.00 would confirm a more durable bottom; failure to hold $35.00 risks a retest of the $34.00–$34.50 range. Volume and momentum indicators are implied to be expanding given the magnitude of the 1-month +10.61% move.

Bull Case

• Anchored inflation expectations: The 10-year break-even inflation rate sits at 2.39%, only 10 bps above February levels, suggesting bond investors view energy-driven price pressures as transitory and not structurally de-anchoring. Source
• Value emergence at multi-decade yield highs: Goldman Sachs identifies emerging value opportunities in Treasuries after the 30-year yield spike to 5.20%, implying that institutional demand may stabilize the long end. Source
• Geopolitical flight-to-safety potential: Escalating Middle East tensions and Strait of Hormuz closure risks could trigger safe-haven flows into U.S. Treasuries, driving yields lower and TMF higher. Source
• Mortgage hedging two-way flows: While convexity hedging amplified the selloff, one-third of outstanding MBS trades near par, creating conditions for rapid repositioning that could fuel Treasury rallies if rates stabilize or decline. Source
• Institutional product expansion: Invesco's launch of five new Treasury BulletShares ETFs and its $27.6 billion platform demonstrate sustained institutional appetite for Treasury exposure, supporting overall market depth. Source

Bear Case

• Rate hike expectations replacing cuts: Market pricing has shifted dramatically toward a Federal Reserve rate hike by December rather than cuts, with the 2-year yield 50 bps above the Fed's target range midpoint. Source
• Structural deficit and supply overhang: Mounting U.S. fiscal deficits increase Treasury supply, while weak demand at the 30-year auction at 5% signals investor reluctance to absorb long-dated paper without greater compensation. Source
• Barclays' upside yield target: Barclays warns that 30-year yields could breach 5.5%, levels not seen since 2004, implying further 40+ bps of upside that would crush TMF's net assetvalue. Source
• BlackRock reducing DM government bond exposure: BlackRock's research head recommends reducing exposure to developed-market government bonds in favor of equities, reflecting a structural preference shift away from sovereign debt at current yield levels. Source
• End of cheap funding era: The surge in Treasury yields may mark the end of the low-interest-rate environment that has supported asset valuations, with fund managers increasing equity allocations to record levels in April, implying expectations for sustained higher discount rates. Source