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• The iShares TLT ETF has retreated by more than 7.60% from its December high.
• There are concerns about the rising US debt, which stands at over $34.6 trillion.
• Most experts, including Larry Fink, have warned about the US debt.

The iShares 20+ Year Treasury Bond (TLT) ETF has retreated this year as concerns about the American fiscal status. The stock crashed to a low of $92 on Tuesday, 7.60% below the highest point in December last year. This retreat happened even as the fund added over $119 million in assets this year, giving it over $47 billion in assets.

TLT ETF weekly inflows YTD

US fiscal situation is worsening

The TLT ETF has struggled this year amid concerns about the US fiscal situation. Recent data shows that the American public debt has continued soaring this year. It now stands at over $34.6 trillion and is expected to hit $35 trillion in May of this year. The country is now adding $1 trillion in debt after every 100 days.

Unfortunately, there is no easy way out of this debt hole judging by the political statements by Joe Biden and Donald Trump. Also, there is a bipartisan spending problem in Washington as evidenced by the fiscal 2024 budget. The US is expected to spend over $6 trillion this year while Biden has requested $7.3 billion for the next year.

Experts believe that the US needs to lower its spending levels dramatically in the next few years. It also needs to reform its tax system, something that the two parties cannot agree on. Democrats and some Republicans will never agree to spending cuts. Also, most Republicans will never accept tax increases.

Therefore, I believe that the US will lose its last Triple-A rating from Moody’s. S&P Global downgraded the country in 2011 while Fitch slashed it in 2023. 

Many experts have warned about the state of the US debt. The nonpartisan Congressional Budget Office (CBO) estimated that the US debt will jump to over $45 trillion in the next decade. Jamie Dimon, Larry Summers, and Larry Fink have all warned about this. Even Janet Yellen, the Treasury Secretary and a key architect of this deficit spending said:

“I do believe we need to reduce deficits and to stay on a fiscally sustainable path. Biden’s budget proposal offers substantial deficit reduction that would continue to hold the level of interest expense at comfortable levels. But we would need to work together to try to achieve those savings.”

In his recent letter to investors, Larry Fink, the head of the $10 trillion Blackrock said:

“America has paid for old debt by issuing new debt in the form of Treasury securities. It’s a workable strategy so long as people want to buy those securities — but going forward, the U.S. cannot take for granted that investors will want to buy them in such volume or at the premium they currently do.”

In the near term, there is a risk that the US could go through a similar crisis as we saw in the UK when Lizz Truss announced a series of unfunded tax cuts. This could happen if Donald Trump and Republicans win the next election. Trump has pledged to cut taxes in his second term.

The implication of all this is that long-term government bonds could go through a turmoil, which will affect the TLT ETF. Besides, there are signs that many traditional buyers of US debt like China and Japan are paring back these purchases.

TLT ETF technical analysis

TLT chart by TradingView

The iShares 20+ Year Treasury Bond ETF has been under pressure this year. It has crashed from the December high of $100 to the current $92. The fund has also tumbled below the 100-day Exponential Moving Average (EMA) while the Relative Strength Index (RSI) has pointed downwards.

It has also formed a descending channel that is shown in black. Therefore, the outlook for the TLT ETF is bearish, with the initial target to watch being at $90.

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