Recent price action and fund flows for the bond market proxy iShares 20+ Year Treasury Bond ETF (TLT) suggest long bond investors are anticipating the April Consumer Price Index (CPI) will not disappoint.
The previous three CPI reports all arrived slightly hotter than expected, pushing down bond prices for fear of higher-for-longer interest rates.
TLT’s price started the year at about 99, and after months of bad inflation news, it fell to 88 by the end of April, marking an 11% decline.
Fund flows told a similar story as the $47 billion long-term Treasury bond ETF shed nearly $1 billion in assets from January through April, according to etf.com data.
TLT Price and Flows Turn Positive in May
TLT’s price action and flows in May tell a different story, suggesting long bond ETF investors may be expecting some relief on the inflationary front from April’s CPI report.
With just under half the month over, TLT’s price has risen about 2%, and flows are positive at just above $550 million.
While these aren’t large numbers for a fund like TLT, they represent a clear pivot from the past two months as TLT shed more than $1.6 billion in March and April combined.
TLT Monthly Flows, Jan.1 – May 13, 2024
TLT Fund flow data from etf.com as of May 13, 2024.
What TLT Investors Seek in April CPI
For TLT to hold its current price or move higher, the minimal bar to meet will be inflation figures that align with expectations. The April CPI is expected to show an increase of 0.4% and a slight decrease in the year-over-year rate to 3.4% in April from 3.5% in March, according to Morningstar data.
A key figure to watch in the April CPI is auto insurance rates, as premiums surged more than 20% over the past year, according to the March CPI figures. Large increases like this can push the overall CPI number higher while smaller increases can help reduce it.
Price movement on all investment securities tends to be greatest around surprises. Thus, if inflation comes in hotter than expected, TLT’s price would almost certainly fall, whereas a surprisingly cool inflation reading would likely propel its price higher. If CPI doesn’t surprise, meaning the data aligns with expectations, TLT’s price may move in either direction, but not by much.
