Recently the 10 year Treasury yield has dropped by a lot due to the lower expectation of inflation and a stronger prospect of rate cut. Both the yield curve and the coupon rate are inverted right now, with 10-year having 4.5% coupon and 4.2% yield.
My first question is that, is it guaranteed that the yield curve will uninvert at some point in the future? If I understand bond formula correctly, the yield to maturity is dependent on the bond price, coupon rate and years remaining etc. So I guess I'm asking whether the treasury dept. will continuously bump up the coupon rate of the new issues of long term bonds and whether the market will price them so that the long-term bonds eventually have the same yield as overnight fed rate. Was the law of uninverting yield curve taken for granted in the past?
My second question is related to these treasury ETFs. Right now most of my money is in short-term treasury ETFs like SGOV and BILS and I'm thinking about switching to long-term in the future. Based on your experience, are prices of long-term treasury ETFs like TLT or ZROZ mostly fluctuate with the long-term bonds yields or other factors (e.g. inflation expectation) as well? The price of TLT doesn't seem to have a strict correlation with fed rate throughout the decade (although they do move in the same direction in general). And if the yield curve is going to uninvert before the rate cuts, do you expect TLT/ZROZ to come down before it goes up again? When do you think it's a good time to buy long-term?
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