What Happens to a Bond ETF's Price When the Fed Cuts Rates -- Using the Actual Historical Data
Key Points
Many investors assume bond prices will rise whenever the Federal Reserve cuts rates.
That's often true on the short end of the curve. On the long end, macro factors tend to be the driver.
Over the past few years, the path of inflation has pushed the 30-year yield to nearly a 20-year high.
- 10 stocks we like better than iShares Trust - iShares 20+ Year Treasury Bond ETF ›
When the Federal Reserve cuts interest rates, many people assume that bond prices rise in response. In reality, it's more nuanced.
Short-term Treasuries are more closely correlated with the federal funds rate and often do rise. Long-term Treasuries measured by the performance of the iShares 20+ Year Treasury Bond ETF (NASDAQ: TLT) may or may not.
Missed Nvidia in 2009? This Rare Signal Is Flashing Again. In 2009, a "Double Down" signal flashed for a little-known chipmaker called Nvidia. For the first time in years, that same "Total Conviction" signal is flashing for a company 1/100th the size of Nvidia. Continue »
That's because they're more heavily influenced by economic conditions, not policy rates. Long-term yields reflect inflation expectations, risk premiums, government debt levels, and the direction of the U.S. economy. In other words, many moving parts are involved in pricing long bonds.
With markets anticipating rate hikes later this year, it can be helpful to look at what the Fed has done over the past few years and how the bond market has responded. Understanding this could help investors stay on the right side of whatever happens next.
Image source: Getty Images.
2023-2026: A look at the Fed, event by event
To lay some groundwork, let's look at some of the more significant events during the latest Fed rate-cutting cycle and how the iShares 20+ Year Treasury Bond ETF responded.
| Date | Fed Action | Fed Funds Rate | TLT Response |
|---|---|---|---|
| Dec. 13, 2023 | Dot plot signals 2024 cuts but no change yet | Held at 5.25%–5.50% | +4% in the next two trading days |
| Sept. 18, 2024 | First cut of the cycle of 50 bps | Drops to 4.75%–5.00% | -2% in the next two trading days |
| Mid-November 2024 | Two months after the September rate cut | Held at 4.75%–5.00% | -11% from the September meeting |
| March 19, 2025 | No cut; projections still calling for two cuts | Unchanged | +0.5% in the next two trading days |
| September-December 2025 | Three consecutive 25 bp cuts | 4.25%–4.50% → 3.50%–3.75% | +6% September-October; -5% October-December |
| July 2026 | Fed holds rates for fifth straight meeting | 3.50%–3.75% | -5% year to date; 30Y yield above 5.25% for the first time since 2007 |
Data sources: Federal Reserve, iShares, Yahoo Finance. Table by author.
A few of these moments are worth unpacking individually. They've demonstrated the different ways that the Fed and Treasury bonds have reacted:
- December 2023: The Fed hadn't cut yet but signaled cuts were coming soon. With the economy still in good shape, the markets viewed rate cuts as a reason to rally. Cuts were considered a normalization of rates following 2022's aggressive hiking cycle, not a sign of an impending recession.
- September 2024 to November 2024: The Fed delivered a larger-than-expected half-point cut. But inflation was moving higher in the background, which usually results in higher long-term yields. That's exactly how the bond market responded.
- March 2025: The Fed essentially maintained the status quo. Rates and economic expectations were largely unchanged, and long-dated Treasuries moved little.
- Late 2025 into 2026: A similar environment to the second half of 2024. The Fed continued cutting rates, but stubborn inflation remained a risk. Long yield continues to reflect that.
If you're invested in short-duration Treasuries, you can probably count on higher rates to provide you with more income and low downside risk once they get priced in.
Long-term Treasury holders have been hit by higher inflation risk throughout the past three to four years, and that doesn't seem to be changing now. As long as inflation remains high, it's reasonable to expect this group to continue to struggle.
Should you buy stock in iShares Trust - iShares 20+ Year Treasury Bond ETF right now?
Before you buy stock in iShares Trust - iShares 20+ Year Treasury Bond ETF, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and iShares Trust - iShares 20+ Year Treasury Bond ETF wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you’d have $399,724!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $1,374,595!*
Now, it’s worth noting Stock Advisor’s total average return is 967% — a market-crushing outperformance compared to 215% for the S&P 500. Don't miss the latest top 10 list, available with Stock Advisor, and join an investing community built by individual investors for individual investors.
See the 10 stocks »
*Stock Advisor returns as of August 9, 2026.
David Dierking has positions in iShares Trust - iShares 20+ Year Treasury Bond ETF. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
Recommended Articles
