U.S. 30-year Treasury bond futures rose 1.18% in 2025, while the iShares 20+ Year Treasury Bond ETF (TLT) posted a marginal decline of 0.19%. I asked where US government bonds were headed in 2026 in a November 27, 2025 Barchart article, where I concluded with the following:
I favor lower interest rates in 2026, but at the end of 2025, the path of least resistance remains a coin toss that could fall sideways, suggesting another year of sideways trading.
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Long-term bond futures were at 118-09 on Nov. 25, with the TLT ETF at $90.50 per share. Bonds and TLT fell at the end of January 2025, but both remained within the tight trading range since October 2023.
Since 2024, US long bond futures have consolidated between 110-01 and 127-22.
The monthly chart highlights that in 2025, the range was from 110-01 to 122-05. The trading range for US government 30-year Treasury bond futures narrowed in 2025, and at the 115-26 level in late January, the bonds were within the consolidation range.
Since 2024, the iShares 20+ Year Treasury Bond ETF has followed long-term bond futures, consolidating between $83.30 and $101.64 per share.
The monthly chart highlights that in 2025, the range was $83.30 to $94.09 per share. TLT’s trading range narrowed in 2025, mirroring that of long-term bond futures. At the end of January, at $88.23 per share, TLT was within a consolidation range.
In the coming months, the character of the US Federal Reserve will change as President Trump replaces Chairman Powell with a more dovish person. The President originally appointed Chair Powell during his first term, but he has become increasingly critical of the Federal Reserve’s approach to monetary policy, insisting that the central bank has acted too slowly in reducing the short-term federal funds rate while inflation has fallen below the 3% level, according to the most recent data. The federal funds rate is currently at a midpoint of 3.625% after declines in 2024 and 2025. Meanwhile, the central bank has cautiously lowered the rate, which remains elevated, out of concern that the Trump administration’s tariffs and trade policies will increase inflationary pressures.
The bottom line is that short-term interest rates are likely to fall further in 2026, when the administration appoints a new Federal Reserve chair who supports the president’s monetary policy demands.
While the U.S. central bank has other options in its monetary policy toolbox, short-term interest rates and the federal funds rate are its primary monetary policy tool. While the Federal Reserve’s FOMC has complete control of the short-term federal funds rate, market forces determine interest rates beyond the yield curve. Therefore, there is no guarantee that falling short-term rates will trickle down and lower long-term interest rates.
The Federal Reserve cut the federal funds rate by 100 basis points in 2024 and another 75 basis points in 2025. Long-term bond futures stayed in their consolidation range, meaning the Fed’s rate cuts did not trickle down to longer-term interest rates. Time will tell whether further reductions in 2026 will affect longer-term interest rates this year.
While long-term interest rates remain elevated despite the 175 basis point reduction in short-term rates over the past two years, the following factors support higher long-term bonds and lower long-term interest rates in the coming months:
New Federal Reserve appointments and a new chairman in the coming months will likely lower the short-term federal funds rate. A more dovish Federal Reserve chair will have additional monetary policy tools that could help lower long-term rates.
While long-term bond futures and the TLT ETF remain within their narrowing trends, they have not challenged the October 2023 low, which is the critical technical support level.
Volatility in the US stock market or unforeseen events that raise economic or geopolitical fears could trigger a wave of buying US government bonds, as the United States remains the leading economic power. The 2020 highs came as market participants reacted to the global pandemic.
Meanwhile, other factors that could keep pressure on long-term bonds and the TLT are the following:
Inflation remains above the Federal Reserve’s 2% target, adding downward pressure on long-term interest rates in the United States.
US debt, over $38.64 trillion and rising, is bearish for bonds as it reduces America’s credit rating and demand for its sovereign debt.
The long-term trend from the 2020 high remains bearish, despite sideways trading action in 2024 and 2025. Technical resistance for the long bond and TLT lies at the September 2024 highs of $127-22 and $101.64 per share, respectively. Breaking through those levels is necessary to nullify the downtrends from the 2020 highs.
Gold and silver prices have soared, indicating inflationary pressures that could continue to support high long-term interest rates.
The path of least resistance for US long-term interest rates remains sideways at the end of January 2026. Bullish and bearish factors are pushing bonds and the TLT ETF in opposite directions, and we could have a third consecutive year of sideways trading in long-term interest rates in 2026.
On the date of publication, Andrew Hecht had no (directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article are for informational purposes only. This article was originally published on Barchart.com
