U.S. Treasury yields moved lower Thursday, with the 10-year tucking under 4% for the first time since April. Equity markets moved lower in an acute fashion with a newfound concern over bad regional bank loans causing a safe-haven run towards U.S. Treasurys. I want to own the TLT ETF as I envision Treasury yields continuing to move lower into year-end. The financial impact of collapsing auto parts giant First Brands spooked traders, sending many regional and other bank stocks to heavy, and arguably unwarranted, losses. The move lower in Treasury yields came as stocks reversed on the day and took a sharp tumble lower, led by the profit taking or panicking specific to regional bank shares (KRE). Traders are certainly growing more worried about potentially bad loans, as two recent bankruptcies have suggested that lending standards may have relaxed too much. Yet, I do not see regional bank issues turning into something bigger for markets to worry about. The 10-year briefly hit 3.96%, its lowest level since April 7, while the 2-year touched 3.41%, its lowest level since Sept. 8, 2022. One basis point is equal to 0.01% and yields and prices move in opposite directions. As of mid-October, Treasury Secretary Scott Bessent has advocated for further interest rate cuts by the Fed. Following a quarter-point rate cut in September, Bessent indicated he expects a “series of rate cuts” and has openly criticized Fed Chairman Powell for being behind the curve and not being more aggressive in easing monetary policy. He has also stated that models suggest the “neutral” rate is 150 to 175 basis points lower than the current range. Expectations for two more cuts in 2025 are now over 75%. As volatility should create opportunity for rates to move lower, I want to define the risk in this trade in the event my timing is premature. The trade (Buying a call spread) Bought the Dec. 19 $91 TLT call for $1.95 Sold the Dec. 19 $95 TLT call for $0.75 TLT was roughly trading over $91 when this trade was made. This is a debit spread that costs an investor $1.20 or $120 per one lot spread. TLT needs to be over $92.20 for this trade to break even by expiration. DISCLOSURES: Kilburg is long TLT and long this call spread. All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL, their parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
