Treasury yields edged higher following the Federal Reserve's meeting on Wednesday, but the bond markets remain convinced that low inflation and low growth is the new norm. Despite the third longest economic recovery on record, the United States continues to see record low inflation that has kept interest rates in check. Many policymakers, including Fed Chairwoman Janet Yellen, overestimated the amount of inflation brought on by unconventional monetary policy.

The iShares 20+ Year Treasury Bond ETF (TLT) fell to key support levels before rebounding higher toward the end of the week. With equity prices facing lofty valuations, many investors may be turning toward long-term Treasury bonds to realize yield, which could have a positive impact on prices over time. The unwinding of the Federal Reserve's balance sheet, however, could have a negative impact on bond prices at all maturities. (See also: The Big Bond Rally of 2017 May Be Over.)

Technical chart showing the performance of the iShares 20+ Year Treasury Bond ETF (TLT)

From a technical standpoint, the fund moved sharply lower in September from upper trendline and R1 resistance at $129.69 to the 50-day moving average at $125.70. The relative strength index (RSI) moderated to neutral levels of 48.0, but the moving average convergence divergence (MACD) experienced a bearish crossover earlier this month. This crossover could signal a renewed downtrend and lead to a bearish bias.

Traders should watch for a rebound from the 50-day moving average, past the pivot point at $126.30 and toward the middle of its price channel. On the other hand, a breakdown from the 50-day moving average and lower trendline resistance at $125.00 could lead to a move down to the 200-day moving average at $121.45. Traders should also keep an eye on upcoming inflation indicators as factors that could have an influence on the fund. (For more, see: Overview of the TLT ETF.)

Chart courtesy of The author holds no position in the securities mentioned except through passively managed index funds.

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