The long bond market proxy iShares 20+ Year Treasury Bond ETF (TLT) has dropped more than 11% since its 2024 high mark set two months ago, just before the Fed’s 50 basis-point rate cut.

Why is TLT going down, even as the Fed is actively cutting rates?

The short answer is renewed inflation concerns.

Since the Sept. 18 “jumbo” rate cut, fixed income investors have bid treasuries lower as economic reports suggest inflation is sticking around for a while.

Last week’s CPI report revealed that consumer prices rose 0.2% in October while the annual inflation rate edged up to 2.6% from 2.4%, marking its first rise in seven months, complicating decisions on the pace of future interest rate cuts.

Excluding food and energy, the so-called core inflation rate grew by 0.3% for the third straight month, reflecting persistent underlying price pressures.

The bond market is now pricing in a 60% probability that the Fed will cut rates by 25 basis points at its December meeting. That bet is down from 85% one month ago.

Digging Deeper: Why TLT’s Price Is Falling

The recent TLT ETF price decline can be attributed to several contributing factors:

It's important to note that bond prices and yields have an inverse relationship. As bond yields rise, bond prices typically fall. Therefore, higher-for-longer inflation and expectations of a rate pause, or future rate hikes can contribute to a decline in the price of TLT.

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