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🕒 Market Overview: A satisfactory end to the Middle East turmoil, a continued weak dollar index, and central bank policies to reduce interest rates would favor higher bond and TLT prices over the coming months.

📈 Sector Insight: Technical resistance for the TLT ETF is at the top of the trading range at $101.64 per share, which is well above the top end of the vertical bull call spread in late April 2026. The $90-$95 TLT bull call spread at $1.05 or lower offers value for those looking for lower interest rates by the end of 2026.

💡 Today's Trade Idea: Bull Call Spread on TLT.

💡 SMART TRADE IDEA

Bull Call Spread on TLT

Trade Setup: Buy $90 Call / Sell $95 Call, December 18, 2026, expiration.

Cost: $1.05 ($105 per spread)

Max Profit: $3.95 ($395 per spread)
Breakeven: $91.05 on TLT on December 18, 2026
Risk-reward: 1:3.76

Management Plan: Roll up or take profits if TLT reaches $95 per share before December 18, 2026.

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NOTE: Remember, options trading involves substantial risk and is not suitable for all investors. Consider your investment objectives, financial resources, and experience level before implementing this or any options strategy.

DISCLOSURE: Trade recommendations may have changed since publication. Evaluate current market prices and risk/reward before acting. Trading involves significant risk and is not suitable for everyone. This is not personalized investment advice. Past performance doesn't guarantee future results. Publisher and contributors may hold positions in recommended securities. Readers assume full responsibility for their trading decisions. Consult a financial professional before investing.

Why Bonds May Be Undervalued at Current Levels

U.S. interest rates remain elevated in April 2026. While the U.S. Federal Reserve reduced the short-term federal funds rate in 2024 and 2025, it has remained steady at 3.625% in 2026. Meanwhile, the Fed faces significant changes over the coming weeks as Kevin Warsh will take over as Chairman, replacing Jerome Powell. President Trump has not been shy about lobbying for a lower Fed Funds Rate over the past year, but rising oil prices have put upward pressure on inflation. Meanwhile, an end to hostilities in the Middle East could trigger a dramatic decline in oil prices, likely setting the stage for further short-term rate cuts. The Fed’s primary monetary policy tool is the Fed Funds Rate. The central bank employs short-term rates to achieve its dual mandate of maximum employment and price stability.

A falling Fed Funds Rate does not guarantee lower long-term U.S. interest rates, as bond markets determine them, and they are a function of market sentiment. However, falling oil prices go a long way toward improving sentiment, leading to a rally in U.S. government bonds with maturities over 20 years. The iShares 20+ Year Treasury Bond ETF (TLT) moves higher and lower with the long-term U.S. government bond market. 

Long-term U.S. bonds are trading in a narrow range

Source: Barchart

After plunging 44.1% from 191-22 in March 2020 to 107-04 in October 2023, the 30-Year U.S. Treasury bond or long bond futures contract has traded in a narrow range between 108-19 and 127-22 since November 2023.

TLT has tracked the long-term bond market

Source: Barchart

Over the same period, the iShares 20+ Year U.S. Treasury Bond ETF (TLT) dropped 54.1% from $179.70 in March 2020 to $82.42 per share in October 2023. The TLT has traded in a narrow range between $84.02 and $101.64 since November 2023.

 The case for lower long-term interest rates

The U.S. administration has lobbied for lower interest rates over the past year. President Trump has nominated Kevin Warsh to replace Jerome Powell as the next Fed Chairman. Inflation indicators have declined since the pandemic highs, and stocks have rallied to new record highs. Moreover, both Democrats and Republicans appear to support lower long-term interest rates due to a cooling in the labor market, the management of record government debt, and the leveraging of productivity gains from new technologies. The dollar index has declined, which tends to weigh on U.S. rates.

An end to hostilities in the Middle East, with a U.S. victory, could set the stage for lower U.S. rates.

The issues that could keep rates elevated

The bifurcation of the world’s nuclear powers and de-dollarization, driven by U.S. sanctions and tariffs, make U.S. debt securities less attractive. The U.S. debt, at over $39 trillion, is another critical factor causing elevated interest rates.

Increasing military spending due to the hostilities with Iran is another issue that could keep long-term interest rates higher for longer.

The U.S. midterm elections could cause increased market volatility, sending rates higher.

The odds favor falling rates- A trade recommendation for a rising TLT ETF

The long bond futures are at 114-02 and the TLT at $86.75 per share, both below their respective midpoints of 118-04 and $92.83.

A satisfactory end to the Middle East turmoil, a continued weak dollar index, and central bank policies to reduce interest rates would favor higher bond and TLT prices over the coming months.

The TLT $90-$95 vertical bull call spread expiring in late 2026 has an attractive risk-reward ratio.

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