Long-duration U.S. Treasury bonds have had a tough time amid inflation, interest rate activity, and yields that have risen dramatically since a pandemic-era low point. While the consensus view may be that long bonds like this are risky, contrarian investors can argue that long-duration Treasury bond exchange-traded funds (ETFs) may offer asymmetric upside if inflation fears diminish and rates normalize once again.
Oil prices may be an important driver here, as oil price spikes may be prolonging sticky inflation. A reduction of geopolitical risk—say, via a ceasefire between the United States and Iran—may drop both inflation expectations and Treasury yields. Because even a modest drop in long-term yields can significantly impact the performance of long-duration bonds, investors anticipating such a shift may want to get in now.
