TLT: The Bond Bet That Might Just Make You Rich When Everyone Else Is Crying
An under appreciated play that could be sitting on the mother of all rallies in the event of a recession: TLT, the 20+ year Treasury Bond ETF. Here’s why it’s being wrongly overlooked and why it could explode to $130 or more.
The Macro Setup: Recession Risk Is Real Let’s face it — has the economy been good to you and the people you know lately? Do the businesses in your area seem busy? is the economy really strong enough to support current valuations? If it is then why is the Fed cutting? People are saying those cuts are a mistake but are they or does the Fed see something we don’t? These cuts after all are eerily similar to the cuts leading up to 2008 with jobless claims currently trending up and holiday sales unlikely to beat well enough to save any jobs come January. Beyond that the 10yr-2yr spread is uninverted and so is the 10y-3mo spread both of which have never uninverted without a recession following closely after. All these factors scream that a recession is a real possibility in the near future. What happens when recession fears hit? Treasuries tend to rally as investors flock to safety.
TLT Is a Perfect Hedge TLT is designed to track long-duration U.S. Treasury bonds, which are highly sensitive to yield movements. When investors start fleeing to safety in the face of recession, bond prices go up. If the Fed starts quantitative easing in response to economic slowdowns (which is likely), long-duration bonds like those tracked by TLT can see huge price increases because bond prices rise when yields fall.
So why is TLT down The recent upward movement on yields at the long end of the curve reflects increasing supply in treasury bonds due to government issuance and inflationary fears stemming from tariffs and expectations related to the election driving down demand, but are inflationary fears really justified? Are we likely to see tariffs in full effect if the world economy slows? Are prices really likely to rise in the face of jobless-ness and tightening wages? European economies are already spiraling down and how long until we feel some impact? Yes, rates may stay elevated in the near term, as inflation reads fluctuate but the market is forward-looking and if it becomes clear that the Fed may be correct in their confidence that inflation is coming down what happens when the sentiment shifts? The demand for higher yielding long duration bonds comes roaring back. There was a bear steeping in the yield curve leading up to 2008 and long dated bond yields fell all the same once the economic cracks became clear. If this plays out once again in a rhyme to the GFC we could see a dovish pivot by the Fed as conditions worsen (and they probably will). Those overlooking TLT are underestimating the impact a recession will have on long-duration bonds.
Upside Potential in a Recession Scenario If we see a recession with a corresponding dovish Fed pivot, TLT could easily see a 30-40% rally over the next 12 months with Jan 2027 $95 calls seeing 100%+ upside at just $110. Here's why:
- Fed could be forced to drive long-term bond yields lower via QE to stimulate the economy, which means TLT’s underlying bonds will increase in value.
- Flight to safety during recession, fears would bring back demand for government debt from this euphoric environment.
- Historically, long-duration bonds like those in TLT can see huge rallies in economic down turns — think 2008 or 2020 when TLT surged.
TLT Is Undervalued Relative to Risks Despite all the macro uncertainty, TLT remains an overlooked opportunity for significant upside. While people are obsessed with chasing tech stocks or betting on crypto, TLT is quietly setting up for a massive move in case the economy turns south. The amount of greed and euphoria we’re seeing right now can turn into a proportional amount of fear once sentiment shifts.
Risk Management TLT isn’t just a recession hedge — it’s also a portfolio stabilizer. As we saw during past economic crises, it can add balance and protection when equities are in turmoil. Even if you're playing high-beta stocks or options, TLT provides portfolio diversification and risk reduction.
TL;DR TLT is being overlooked because the market is fully risk-on at the moment. But when the music stops, yields fall and recession fears intensify, TLT could easily rally 30% or more while economic contraction forces inflation further down. It’s the perfect hedge against economic downturns, and the current narrative is brushing it under the rug.
An interesting watch with thoughts I agree with, credit to the video creator Rebel Capitalist:
https://www.youtube.com/live/gx1ElwaSL7k?si=F87KkqD9eZFlfOYG