iShares U.S. Treasury Bond ETFCBOE: GOVT

Expectations of Fed rate cuts have been rising lately due to continued signs of cooling inflation.

The latest inflation data signals confirmed bets that the Fed will cut rates next week, pushing Treasury ETFs to new highs.

U.S. Treasury bonds remain secure and reliable investments despite recent performance. Shares U.S. Treasury Bond ETF (GOVT) provides low-cost access to the US Treasury bond market. GOVT offers exposure to the entire US Treasury yield curve with minimal credit risk and a 30-Day SEC yield of 4.6%.

The iShares U.S. Treasury Bond ETF is a high duration ETF sensitive to speculated rates and Fed policies. Powell's remarks suggest rate cuts may not come as soon as expected, but failure of soft landing hopes could bring down longer-term rates which would actually be good for GOVT. Prices of longer duration bonds have gone up due to lower than expected debt issuance and potential for rate cuts but only in response to a higher probability of recession.

Treasury Bonds have rallied in recent weeks but remain on a broader downtrend. In contrast with relatively resilient economic data, far too many rate cuts have been priced into the curve at this point. With fundamental issues around the deficit and debt issuance path still unaddressed, the risk/reward still seems unfavorable for low-cost Treasury Bond ETFs.

Fitch has made headlines this week for its downgrade of US sovereign debt. But the big step up in issuances outlined at this month's refunding is arguably the more important credit event. The iShares US Treasury Bond ETF offers a solid yield but could underperform in the coming months amid increased cheapening pressure.

Sentiment is quite negative for Treasuries, with the US debt ceiling dominating headlines. In the past, buying US bonds amidst such fear has proven to be a good short-term trade. Monetary policy tightening measures are hitting the economy now, and commodities prices have eased in the last year. Both provide a bias for further near-term softer CPI prints.