Bond ETFs Rise on Plunging Consumer Confidence

Kent Thune

Wed, Apr 30, 2025, 5:00 AM 2 min read

Inflation is no match for falling consumer confidence, as evidenced by this week’s falling Treasury yields and rising bond ETF prices.

The latest reading of the Conference Board’s Consumer Confidence Index notched 86 for April, reaching its lowest point since May 2020, when Covid-19 fears were peaking.

This downturn is largely attributed to escalating trade tensions and growing economic uncertainty, leading investors to seek safer assets and recession hedges, resulting in increased demand for long-duration Treasury ETFs.

For example, the iShares 20+ Year Treasury Bond ETF (TLT) is up about 4.5% in the past five trading days and the more rate-sensitive Vanguard Extended Duration Treasury Index Fund ETF (EDV) has risen nearly 7% in the same period.

These gains reflect falling Treasury yields, as markets anticipate potential Federal Reserve rate cuts in response to recession fears.

At the start of President Donald Trump's second term, many Americans were optimistic about economic growth, buoyed by promises of tax cuts and deregulation. However, the administration's aggressive tariff policies have since sparked widespread concern.

The imposition of sweeping tariffs on April 2, 2025, led to a significant stock market downturn, with the S&P 500 falling over 10% in two days in anticipation of higher inflation. Bond ETF prices followed stocks lower as inflation pushes up yields, which have an inverse relationship to prices.

Falling consumer confidence can itself precipitate a recession. As individuals cut back on spending due to economic uncertainty, businesses may reduce hiring or lay off workers, further dampening economic activity. The ongoing trade war exacerbates this cycle by increasing costs for businesses and consumers alike. Small businesses, in particular, are feeling the strain, with many reporting reduced demand and rising input costs.

The bond market reflects these concerns, with investors flocking to long-term Treasury securities, driving yields down and prices up, hence the gains for rate-sensitive Treasury bond ETFs like TLT and EDV. This trend indicates a market expectation of slowing economic growth and potential Federal Reserve intervention to stimulate the economy.

In summary, the combination of aggressive trade policies, inflation fears, and declining consumer confidence is creating a challenging economic environment in 2025. The situation underscores the interconnectedness of policy decisions, market reactions and public sentiment in shaping economic outcomes.