A key segment of US bonds is now in a bull market

• Long-dated US Treasury bonds have entered a bull market as markets anticipate a Fed rate cut.
• The iShares 20+ Year Treasury Bond ETF has soared 21% from levels in late October.
• Investors are pricing in hefty rate cuts from the Fed next year as inflation continues to cool.

A bull market has arrived in a key segment of US bonds, thanks to falling yields and expectations for aggressive Fed interest-rate cuts next year. 

The iShares 20+ Year Treasury Bond exchange traded-fund ticked higher on Monday to trade around $99 a share. The ETF is now around 21% higher from where it was in late October, when its price had plummeted to a 16-year-low.

By that measure, long-dated US Treasurys have entered a bull market, a sign that falling rate expectations are fueling a major rally in some US government bonds.

Bond prices are inversely related to yields, which have ticked lower in recent weeks as investors price in Fed rate cuts in 2024. Central bankers suggested at their last policy meeting that they could lower interest rates by 75 basis points next year as inflation continues to cool.

Falling interest-rate expectations led long-dated bond yields to plunge last week, with the 10-year Treasury yield sinking 17 basis-points last Wednesday.

Meanwhile, the 20-year US Treasury yield traded around 4.24% on Monday. That's more than a full percentage point lower from where it was in mid-October, when the 20-year yield peaked around 5.33%.

Some investors are anticipating even more aggressive rate cuts than the Fed has suggested for next year, which could add more fuel to the current Treasury rally. UBS forecasted 275 basis-points of rate cuts in 2024 as the economy risks tipping into recession. Markets are pricing a more than 50-50 chance rates will fall to 4% or lower by the end of next year, implying more than a full percentage point of rate cuts, according to the CME FedWatch tool.