Is Negative Sentiment in Bonds a Reason to Buy?

I concluded a January 27, 2026, Barchart article on U.S. government bonds and interest rates with the following:

The path of least resistance of long-term U.S. interest rates remains sideways in late January 2026. Bullish and bearish factors are pulling bonds and the TLT ETF in opposite directions, and we could be in for a third consecutive year of sideways trading in long-term interest rates in 2026.  

The nearby U.S. government 30-year Treasury bond futures were trading at 115-26 on January 26, 2026, while the iShares 20 Year Treasury Bond ETF (TLT) was trading at $88.23 per share. Both have moved lower in May 2026 amid the situation in the Middle East, which has boosted inflationary pressures and weighed on the bond market. Moreover, the U.S. debt, approaching $40 trillion, is another factor impacting the full faith and credit of U.S. government debt securities. 

The sentiment surrounding the bond market is bearish in May 2026, but that could be the perfect time to fade the price action and buy bonds positioning for lower long-term interest rates. 

The Fed has a new Chairman

In late April, Fed Chairman Jerome Powell held his last press conference, telling the markets that while Kevin Warsh will replace him as Chairman of the Federal Reserve after his confirmation, he will remain on the Board in a voting capacity. 

Chairman Warsh will likely shift the Fed’s monetary policy approach away from reliance on the PCE and could limit the number of post-FOMC press conferences. While the President believes that short-term interest rates should be substantially lower than the present 3.625%, time will tell whether higher energy prices stemming from the hostilities surrounding the Strait of Hormuz will allow the Fed to cut rates in 2026. If inflationary pressures continue to mount, the central bank could raise rates. 

The Fed mandate is stable prices and full employment. Its primary monetary policy tool is the Fed Funds Rate, which determines short-term interest rates. The bond market controls longer-term rates. Given stubborn inflationary pressures, market forces remain largely hawkish, keeping long-term rates elevated. 

The long bonds remain within the long-term range and are approaching support 

The long-term U.S. 30-year Treasury bond futures plunged from the March 2020 high to the October 2023 low. 

The monthly continuous contract chart shows that the long bond futures fell from 191-22 to 107-04 from 2020 through 2023. Since 2024, the long bond futures have settled into a long-term consolidation range between 110-01 and 127-22. In 2026, the range has narrowed to 111-23 to 119-06. While the path of least resistance remains bearish, with lower highs, the 110 level has held. In mid-May 2026, at 112-00, the bonds are near the bottom of the recent trading range, and the bearish bias persists. The bottom line is that long-term interest rates remain elevated as suborn inflationary pressures continue. Crude oil prices around $100 per barrel have only served to keep upward pressure on interest rates and downward pressure on the U.S. 30-year Treasury bond futures. 

The case for higher interest rates dominates

The case for higher long-term interest rates has continued to dominate the bond market for the following reasons:

• Rising commodity prices are inflationary, driving higher rates and lower bond prices.
• Crude oil remains the energy commodity that powers the world. Therefore, the hostilities in the Middle East have caused gasoline and other oil products to soar, spilling over into other commodities, goods, and services.
• U.S. debt is approaching $40 trillion. As U.S. debt rises, the U.S. government’s full faith and credit in the U.S. bond market declines, increasing financing rates.
• De-dollarization due to U.S. tariffs and sanctions, and the bifurcation of the world’s nuclear powers have made U.S. government bonds less attractive assets.
• The U.S. midterm elections could highlight political divisions and lead to higher interest rates.
• The geopolitical landscape remains highly volatile, which does not support a decline in interest rates.
• The trend since the 2020 high has been bearish, and trends are always traders’ and investors’ best friends. 

Sentiment in the U.S. government bond market remains bearish in May 2026. 

The case for lower rates could be compelling

The factors supporting lower U.S. interest rates include:

• The U.S. administration continues to support policies aimed at reducing short- and long-term U.S. interest rates.
• An end to the Middle Eastern hostilities would likely push crude oil prices significantly lower, reducing inflationary pressures.
• The U.S. dollar remains the world’s reserve currency, and in turbulent times, capital has historically flowed to the safety of the U.S. dollar and U.S. bonds. The March 2020 high came during the global pandemic.
• The bond market is likely short, suggesting an eventual short squeeze could lift bond prices and put downward pressure on interest rates. 

The bottom line is that bullish and bearish factors are pulling the U.S. government long-term bond futures in opposite directions. The trading range since 2023 seems likely to continue throughout 2026. However, technical support at the 2023 low of 107-04 is closer to the current level, at 112-00. Technical resistance at 127-22 could be a logical upside target if the bond market recovers over the coming weeks and months. 

TLT is a highly liquid long ETF. TBF is the short ETF 

At $84.73 per share, the iShares 20+ Year Treasury bond ETF (TLT) had over $42.29 billion in assets under management. TLT is a highly liquid ETF that tracks long-term U.S. government interest rates with an average of nearly 21.1 million shares trading each day. TLT charges a 0.15% management fee, and its annual dividend of $3.90 that yields over 4.6%, covers the expense ratio in under two weeks. 

The monthly chart shows that TLT tracks the U.S. 30-year Treasury bond futures. Since 2024, TLT has traded in a $83.30 to $101.64 per share range. At $84.73 per share, TLT is much closer to the bottom than to the top end of its trading range. 

I favor a long position in TLT as sentiment in the U.S. government bond market remains overly bearish. At $84.73 per share, the risk-reward ratio of the trading range favors the upside by nearly 1:12 based on the range since 2024. A short squeeze in the U.S. long-term bond market could create a profitable environment for long TLT positions at $84.73 per share. 

Meanwhile, bond bears who expect higher rates over the coming months can employ the Short 20+ Year Treasury -1X ETF (TBF). At $24.80 per share, TBF had over $81 million in assets under management. TBF trades an average of over 170,000 shares per day and charges a higher 0.95% management fee. TBF moves higher when the long-bond futures decline and interest rates rise. 

In mid-May 2026, I favor a long position in TLT with a stop below $82 and, if the U.S. long bond futures fall below the 107 level. The path of interest rates over the coming weeks and months will impact commodity prices as financing production and inventories depend on rates. Moreover, higher rates tend to impede economic growth, while lower rates support it.