What is TMF? Why long-term bonds will surpass stocks by 2026

In the world of long-term US Treasury bond ETFs, the term TMF is rapidly gaining attention. TMF is an abbreviation for “3x Leveraged 20+ Year US Treasury ETF,” which, compared to the standard TLT (a similar 20+ Year US Treasury ETF), aims to deliver approximately three times the returns when interest rates decline. By early 2026, many institutional investors are once again turning their attention to this leveraged tool, signaling a clear indication that the market is approaching a major turning point.

Gold Price as an Indicator of Deflation Signals

Historical data analysis shows that after gold prices surge by over 200% in a short period, what follows is not inflation but economic pressure and deflation risks. From the 1970s through the early 2000s, and after the 2008 financial crisis, this pattern has been consistently repeated up to the present since 2020.

A particularly noteworthy point is that recessions and economic downturns tend to occur immediately after periods of rapid gold price increases. The current trend in gold prices suggests not a sustained inflation signal but rather a decline in real interest rates and economic headwinds. The bond market has already begun to sense these signs, with downward pressure on long-term interest rates potentially increasing.

The US Fiscal Crisis and Persistently High Long-Term Interest Rates

The US government is currently facing approximately $1.2 trillion in annual interest payments, which accounts for about 4% of GDP. As long as interest rates remain high, this interest expense will increase exponentially in a vicious cycle.

This phenomenon, often called “fiscal dominance,” is not just a theoretical issue but a reality policymakers cannot avoid. High interest rates expand the deficit, which in turn necessitates issuing more bonds, raising the term premium, and ultimately increasing interest costs—a negative spiral.

Hidden Risks of the Treasury Department’s Short-Term Debt Focus Strategy

To ease immediate pain, the US Treasury has significantly reduced long-term bond issuance. Currently, only about 1.7% of new issuance is in 20- and 30-year bonds, with the remaining 98.3% allocated to short-term Treasury bills.

This strategy merely postpones problems. Short-term debt must be continuously refinanced, often at higher future interest rates. The market recognizes this systemic risk and demands a higher term premium. Ironically, this is why long-term interest rates remain high and why they could plummet sharply if growth collapses.

Reversal Potential of Extremely Concentrated Bond Short Positions

The short interest in long-term bond ETFs like TLT has reached an extremely concentrated level of about 144 million shares. This indicates that market participants have accumulated large short positions, which would typically require more than four days to cover.

Historical experience shows that such crowded positions do not gradually unwind but instead trigger sharp reversals when market psychology shifts. Notably, short sellers tend to enter en masse after a price move has already begun, a classic pattern seen near the end of a cycle.

Bond Strategies to Prepare for a Deflation Shock

Recent geopolitical tensions (especially regarding tariffs) are shifting market sentiment from a “reflation” scenario to a “risk aversion” scenario. New tariff threats from the Trump administration and retaliatory measures by other countries are expected to hinder growth, squeeze corporate profits, and induce a deflationary shock.

In such environments, capital tends to shift from stocks to bonds, as historically observed. The dual benefits of rising bond prices due to falling interest rates and interest income will favor bond investors.

Strategic Reallocation by Institutional Investors

The 13F filings distributed in early 2026 show that large funds have significantly increased their holdings of TLT and related leveraged products’ call options quarter-over-quarter. Notably, George Soros’s fund itself has disclosed holdings of TLT call options in its latest 13F.

These movements suggest that sophisticated capital is undertaking a fundamental restructuring of duration strategies. It’s not just trend-following but a strategic repositioning underway.

Rising Scenario for Leveraged Bond ETFs like TMF

The key to rapid long-term bond price increases lies in leveraged products like TMF. TMF typically aims to deliver three times the price movement of TLT (which has a duration of about 15.5 years).

Scenario analysis indicates that a mere 100 basis point decline in long-term yields could result in a +15% to +18% return for TLT, with TMF potentially gaining about three times that, around +45% to +54%. A 150 basis point decline could push TMF’s return to +75% to +90%, and a 200 basis point decline—an extreme but not impossible scenario—could yield +105% to +135% gains.

These calculations do not even include interest income, convexity dividends, or accelerated short-covering effects. There is indeed an “asymmetric upside” potential.

Investment Opportunities Created by Market Discrepancies

Currently, stock market valuations assume robust economic growth, stable profit margins, and favorable financing conditions. Meanwhile, bond markets are pricing in rising fiscal pressures, inflation concerns, and the persistence of high yields.

Long-term bonds possess a “convexity” property, which accelerates gains when interest rates decline. Stocks do not have this property. When one scenario materializes, the return structures will diverge dramatically.

Historical Context of Policy Interventions

The Federal Reserve has historically intervened to lower long-term interest rates when they threaten economic growth, cause fiscal costs to explode, or destabilize asset markets. Specific measures include purchasing long-term government bonds (quantitative easing, QE) or implementing yield curve control.

For example, during the QE era from 2008 to 2014, the 30-year Treasury yield fell from about 4.5% to around 2.2%, and TLT surged by 70%. In 2020, the 30-year yield plummeted from approximately 2.4% to 1.2%, with TLT gaining 40% in just 12 months. These are not theoretical but actual historical events.

Inflation Easing and Fractures in the Labor Market

Recent macroeconomic data show core inflation rates cooling to levels seen in 2021. CPI momentum has clearly weakened, and consumer confidence has hit its lowest in a decade. Simultaneously, credit pressures are mounting, and cracks are emerging in the labor market.

The bond market has begun to quickly sense these signals, with price movements already reflecting a shift in direction.

2026 as the Year of Bonds: The Moment of Realization

As of early 2026, the market is at a pivotal turning point. While many participants still see bonds as “uninvestable,” the fundamental macroeconomic structure is shifting in favor of long-term bonds.

Gold’s deflation signals, US fiscal pressures, highly concentrated short positions, looming trade tensions, and economic growth concerns are converging in an unprecedented manner. Such a situation ending at a “long-term bottom” is extremely rare.

Whether individual or institutional investors, holding long-term bond products like TLT and TMF in an environment with yields over 4% positions them to benefit from asymmetric upside during future yield declines.

After achieving 75% returns through stocks in 2025, the actions of portfolio managers who reallocated most of their funds into bond ETFs in November 2025 are not just emotional decisions but strategic moves recognizing the mathematical convergence of growth and positioning.

By 2026, the scenario where bonds outperform stocks is no longer a hypothesis but a market trend gradually becoming reality.