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I am upgrading my recommendation on the iShares 20+ Year Treasury Bond ETF (NASDAQ:TLT) from a buy to a strong buy, following the latest selloff which has seen the yield on the ETF rise back to 4.8%. While investors are shunning government bonds amid growing concerns over rising supply and higher inflation, the dire state of US government finances may well turn out to be bullish for Treasury bonds. The thesis is simple; at current interest rates, the Treasury will risk losing control of the bond market and the Fed will be forced to undertake quantitative easing to keep yields low. As we have seen in Japan over the past decade, inflation concerns take a back seat when fiscal sustainability comes into question. While renewed QE would likely undermine real returns, declining real yields are likely to more than offset any rise in inflation resulting in strong real total returns over the coming years.
The TLT ETF
The TLT…
