Why Long-Term Bond ETFs Can Outperform Stocks

The iShares 20+ Year Treasury Bond ETF (TLT) offers a compelling lens into why long-term bond ETFs might outshine stocks in today’s volatile global landscape. With the U.S. Federal Funds Rate (FFR) setting the pace for monetary policy worldwide, other nations are racing to cut their own rates to stay competitive, especially as tariffs reshape trade in a post-COVID era. This dynamic could spark a flight to safety, boosting demand for U.S. Treasuries and, by extension, TLT. Meanwhile, trickle-down economics—where tax cuts for the wealthy supposedly spur investment—faces scrutiny as inflation and rate pressures challenge its efficacy. Let’s explore how these forces could elevate long-term bond ETFs over equities, starting with regional alternatives.

China’s bond market, one of the world’s largest, remains tightly controlled, limiting retail ETF options for long-term government debt. The KraneShares Bloomberg China Bond ETF (KBND) and the iShares China CNY Bond UCITS ETF (CYB) provide partial parallels to TLT, though with caveats. KBND, priced in USD with underlying Chinese yuan (CNY) exposure, tracks a mix of government and quasi-sovereign bonds, some exceeding 10 years, but its average duration is shorter than TLT’s 20+ year focus. Its expense ratio, at 0.50%, reflects higher operational costs in China’s opaque market, and its yield sensitivity hinges on PBOC rate cuts—potentially aggressive if U.S. tariffs bite. CYB, denominated in CNY (with USD listings), focuses on government and policy bank bonds, averaging under 10 years’ duration, with a 0.35% expense ratio. It’s less volatile than TLT but misses the long-term upside. China’s rate cuts could accelerate to offset export losses, lifting bond prices, yet foreign access restrictions and currency controls cap these ETFs’ appeal. For true long-term exposure, institutional channels outpace retail options here.

Post-COVID tariffs, like those threatened under a Trump-led U.S., could disrupt global trade, pushing countries to lower rates to cushion their economies. This amplifies TLT’s appeal as a haven, but its price floor—where it’s unlikely to fall further—matters too. TLT’s long duration (17-18 years) ties it inversely to 20+ year Treasury yields. If the FFR stays high (say, 4-5%) while others cut, yields might hit 6%, dropping TLT from $90 to $65-$70—a 34% slide. Yet, historical resilience suggests $80-$85 as a practical floor, buoyed by Treasuries’ safe-haven status. Meanwhile, trickle-down economics, revived by tax cuts, might juice stock markets short-term but falter if inflation persists, eroding corporate margins. Stocks could stumble as tariffs raise costs, while bonds thrive if central banks flood markets with liquidity to offset trade wars, pushing TLT higher.

Long-term bond ETFs like TLT could outperform stocks as global rate cuts and tariff fallout unfold. If the FFR holds firm, forcing others to slash rates, Treasury yields might dip as demand spikes, lifting TLT’s price—perhaps back to $100 or beyond from $90. Stocks, however, face headwinds: tariffs could crimp profits, and trickle-down’s promised growth may not trickle fast enough in a high-rate, inflationary world. Europe’s IBGZ and MTXX could rise too, but TLT’s depth and U.S.-centric stability give it an edge. Historically, bonds shine in uncertainty—think 2023’s 5-6% yield peak when TLT hit $84.89. If rates peak and reverse, or if trade tensions escalate, TLT could climb 20-30%, outpacing equity volatility.