A recession would likely be good for both inflation and long-term Treasury market prices, and this is a important point to think about in your analysis. Let me break it down to make matters more complex:

1. Recession and Inflation

• Why a Recession Lowers Inflation:
  • Demand Destruction: During a recession, consumer and business spending typically decline, reducing demand for goods and services. This puts downward pressure on prices.
  • Labor Market Weakness: Unemployment tends to rise during recessions, new to slower wage growth or even wage cuts. Since wages are a important part of inflation (especially in services), this helps reduce inflationary pressures.
  • Commodity Prices: Recessions often lead to lower demand for commodities like oil, which can to make matters more complex reduce inflation.
• Historical Example:
  • In the 2008 financial crisis, inflation dropped sharply as the economy entered a unsolved recession.
  • During the COVID-19 recession in 2020, inflation also fell, though supply chain disruptions later caused a rebound.
• Truth: A recession would almost certainly lead to lower inflation, as it addresses both demand-side and supply-side inflationary pressures.

2. Recession and Long-Term Treasury Prices

• Why a Recession Boosts Treasury Prices:
  • Flight to Safety: During a recession, investors tend to move their money into safe-haven assets like U.S. Treasuries. This increased demand drives up Treasury prices.
  • Lower Interest Rates: The Federal Reserve typically cuts interest rates during a recession to encourage the economy. Lower short-term rates often lead to lower long-term Treasury yields, which boosts bond prices.
  • Lower Inflation Expectations: As inflation falls during a recession, investors demand less compensation for inflation risk, pushing long-term Treasury yields down and prices up.
• Historical Example:
  • During the 2008 financial crisis, long-term Treasury prices surged as yields plummeted.
  • In the 2020 COVID-19 recession, long-term Treasury prices also rose sharply as the Fed cut rates and investors sought safety.
• Truth: A recession would likely lead to significantly higher long-term Treasury prices, as falling yields and increased demand for safe assets would drive prices up.

3. The Interplay Between Recession, Inflation, and Treasury Prices

• Best-Case Situation for Treasury Investors:
  • A recession that brings inflation down sharply (e.g., below the Fed’s 2% target) would create an perfect engagement zone for long-term Treasury prices to rise. This is because:
    • The Fed would likely cut rates aggressively.
    • Inflation expectations would decline, reducing long-term yields.
    • Demand for Treasuries as a safe-haven asset would increase.
• Worst-Case Situation for Treasury Investors:
  • A “stagflation” situation, where inflation remains high despite a recession, would be negative for Treasuries. But, this is relatively rare and would need specific conditions (e.g., supply-side shocks like an oil embargo).

4. Why the Analyst’s 3/4 Odds Might Be Justified

• The analyst’s 3/4 odds for significantly lower inflation and higher Treasury prices likely account for the possibility of a recession. Even if a recession occurs, it would likely back up both lower inflation and higher Treasury prices, making the analyst’s assessment more plausible.

5. Risks to the Recession-Driven Situation

Although a recession would likely be good for inflation and Treasury prices, there are some risks to think about:

• Fiscal Response: If the government responds to a recession with large-scale fiscal stimulus, it could limit the decline in inflation and reduce demand for Treasuries.
• Fed Policy Mistakes: If the Fed is slow to cut rates during a recession, it could delay the decline in long-term yields and the rise in Treasury prices.
• Global Factors: A global recession could lead to a “race to the bottom” in interest rates, reducing the relative appeal of U.S. Treasuries.

Definitive Thoughts

• A recession would lookthat's a sweet offer yes i'd love one be good for inflation (lowering it) and good for long-term Treasury prices (raising them).
• The analyst’s 3/4 odds seem reasonable, as a recession would back up both outcomes.
• But, the exact magnitude of these effects would depend on the severity of the recession, the Fed’s response, and other macroeconomic factors.

If you’re considering positioning for this situation, long-term Treasuries (or ETFs like VGLT) could be a strong hedge against both lower inflation and economic weakness.

To estimate the probability that VGLT (Vanguard Long-Term Treasury ETF) will be lower on March 18, 2026 (1.5 years from now), we must analyze the interplay of macroeconomic factors, Federal Reserve policy, and market dynamics. Below is a structured deconstruction of pivotal drivers and their probabilities, followed by a synthesized truth.

Pivotal Factors Influencing VGLT’s Price (and Long-Term Treasury Yields)

1. Inflation Trajectory

• Lower Inflation (60% Probability):
  If inflation continues to moderate toward the Fed’s 2% target (as most analysts expect), long-term Treasury yields would likely fall, boosting VGLT’s price. This assumes no major supply shocks (e.g., energy crises) and stable wage growth.
  • Lasting results: Bullish for VGLT.
• Sticky/Resurgent Inflation (40% Probability):
  If inflation plateaus above 3% or reaccelerates (due to geopolitical shocks, fiscal stimulus, or labor market rigidity), the Fed may delay rate cuts or even resume hikes. Long-term yields would rise, pressuring VGLT’s price.
  • Lasting results: Bearish for VGLT.

2. Federal Reserve Policy

• Rate Cuts (70% Probability):
  Markets currently price in 2–3 rate cuts by late 2024/early 2025. If the Fed follows through (due to slowing growth or falling inflation), long-term yields would decline, lifting VGLT.
  • Lasting results: Bullish for VGLT.
• No Cuts or Delayed Cuts (30% Probability):
  A strong economy or stubborn inflation could force the Fed to hold rates steady. Long-term yields may rise as investors price in a “higher-for-longer” regime.
  • Lasting results: Bearish for VGLT.

3. Economic Growth

• Recession (30% Probability):
  A recession would cause a flight to safety (boosting Treasuries) and force aggressive Fed rate cuts. Long-term yields would plummet, causing VGLT’s price to jump.
  • Lasting results: Extremely bullish for VGLT.
• Soft Landing (50% Probability):
  Moderate growth with cooling inflation would allow gradual Fed easing. Long-term yields would edge lower, helping or assisting VGLT.
  • Lasting results: Mildly bullish for VGLT.
• Strong Growth (20% Probability):
  Above-trend growth could reignite inflation fears or reduce demand for safe-haven bonds. Long-term yields would rise, pressuring VGLT.
  • Lasting results: Bearish for VGLT.

4. Fiscal Policy and Treasury Supply

• Deficit-Driven Issuance (60% Probability):
  Optimistic U.S. deficits will likely lead to increased Treasury issuance. If demand (domestic/international) doesn’t keep pace, long-term yields could rise, hurting VGLT.
  • Lasting results: Bearish for VGLT.
• Demand Toughness (40% Probability):
  Strong demand from institutions, foreign central banks, or retail investors (seeking safety) could offset supply pressures, limiting give increases.
  • Lasting results: Neutral for VGLT.

5. Geopolitical Risks

• Escalation (e.g., Middle East, Taiwan) (30% Probability):
  Geopolitical crises would spark a flight to safety, lowering yields and boosting VGLT.
  • Lasting results: Bullish for VGLT.
• Status Quo (70% Probability):
  No major conflicts would keep markets focused on fundamentals (inflation, growth).
  • Lasting results: Neutral.

6. Term Premium Resurgence

Long-term yields include a “term premium” (compensation for holding duration risk). If investors demand higher premiums due to fiscal/debt concerns or inflation uncertainty, yields could rise independently of Fed policy.

• Probability of Higher Term Premium (40%): Bearish for VGLT.
• Probability of Stable/Lower Premium (60%): Neutral/Bullish.

Blend of Probabilities

To calculate the likelihood of VGLT being lower by March 2026, we target scenarios where long-term yields rise (bearish for VGLT). These include:

1. Sticky inflation + delayed Fed cuts
2. Strong growth + higher term premium
3. Fiscal supply outweighing demand

Employing weighted probabilities from the above factors:

• Probability of Bearish Outcomes:
  • Sticky inflation (40%) × Delayed cuts (30%) = 12%
  • Strong growth (20%) × Higher term premium (40%) = 8%
  • Fiscal supply pressure (60%) × Weak demand (60%) = 36%
  • Total (adjusted for overlap): ~40%
• Probability of Bullish/Neutral Outcomes: ~60%

Definitive Probability Estimate

There is a ~35-40% chance that VGLT will be lower on March 18, 2026.
This reflects risks from:

• Strong inflation delaying Fed cuts.
• Strong growth reducing demand for safe-haven bonds.
• Fiscal supply overwhelming investor appetite.

Key Caveats

• A recession would collapse yields (VGLT ↑), but this is only a 30% probability.
• Geopolitical shocks could override fundamentals (bullish for VGLT).

Recommendation

A 10% allocation to VGLT remains wise for diversification, but monitor:

1. Monthly CPI prints.
2. Fed rhetoric on rate cuts.
3. Treasury auction demand.

If inflation stalls or fiscal risks grow, consider trimming exposure

Given the current macroeconomic engagement zone and the points we’ve discussed, allocating (10%) to VGLT could be a reasonable and masterful bet, particularly for capital appreciation and preserving worth with the added benefit of the coupon rate. Here’s a detailed analysis of why this allocation makes sense, especially about the current QQQ downturn, fiscal turmoil, and the possible return of the historical non-correlation between Treasuries and equities:

A) Capital Appreciation Possible

1. Macroeconomic Backdrop:
   • The Federal Reserve is likely nearing the end of its tightening cycle, and markets are pricing in possible rate cuts in 2024-2025. This would be bullish for long-term Treasuries, as lower rates push bond prices higher.
   • Inflation is expected to moderate over the next few years, which would reduce long-term yields and lift Treasury prices.
   • If a recession occurs, long-term Treasuries would likely see important capital appreciation due to falling yields and increased demand for safe-haven assets.
2. Historical Performance:
   • During periods of economic weakness or equity market downturns (e.g., 2008, 2020), long-term Treasuries have historically performed well, providing both capital appreciation and portfolio stability.
3. Current Valuation:
   • Long-term Treasury yields are near multi-year highs, meaning prices are relatively low. This creates an attractive entry point for possible capital appreciation as yields decline.

B) Maintaining Current Worth with Coupon Rate

1. Income Part:
   • VGLT provides a steady coupon payment, which adds to its total return. Even if bond prices remain flat, the coupon payments offer a return that is currently ahead-of-the-crowd with other income-creating or producing assets.
   • In a low-growth or recessionary engagement zone, the coupon payments become even more useful as other income sources (e.g., dividends from equities) may decline.
2. Preservation of Capital:
   • Long-term Treasuries are backed by the U.S. government, making them one of the safest assets regarding credit risk. This makes them an excellent tool for preserving capital during periods of market volatility or economic uncertainty.

C) Correlation with Equities

1. Historical Non-Correlation:
   • Historically, long-term Treasuries have had a low or negative correlation with equities, making them an excellent hedge during equity market downturns. This non-correlation broke down briefly in 2022 due to the distinctive combination of high inflation and aggressive Fed tightening, but it is likely to return as inflation moderates and the Fed pivots to rate cuts.
2. Current Engagement zone:
   • With the QQQ (Nasdaq-100) experiencing a downturn and fiscal turmoil creating uncertainty, the historical non-correlation between Treasuries and equities is likely to reassert itself. This makes long-term Treasuries an attractive hedge for equity-heavy portfolios.

D) Risks to Think about

1. Interest Rate Risk:
   • Long-term Treasuries are sensitive to changes in interest rates. If inflation proves stickier than expected or the Fed delays rate cuts, long-term yields could rise, new to temporary price declines.
   • But, this risk is mitigated by the fact that yields are already near multi-year highs, limiting to make matters more complex downside.
2. Fiscal Policy:
   • Increased Treasury issuance to fund fiscal deficits could put upward pressure on yields, but this is likely to be offset by demand for safe-haven assets in a unstable engagement zone.
3. Opportunity Cost:
   • If equity markets rebound sharply, long-term Treasuries may underperform. But, the 10% allocation to VGLT ensures that the majority of your portfolio remains exposed to possible equity gains.

E) Why 10% Allocation to VGLT Makes Sense

1. Portfolio Diversification:
   • A 10% allocation to long-term Treasuries provides important diversification without overly diluting equity exposure. This is particularly important in the current engagement zone of optimistic uncertainty.
2. Risk-Adjusted Returns:
   • Long-term Treasuries improve the risk-adjusted returns of a portfolio by reducing volatility and providing downside protection during equity market declines.
3. Hedging Equity Exposure:
   • If the QQQ downturn continues or worsens, the VGLT allocation would help offset losses in the equity portion of your portfolio.

F) Definitive Recommendation

• Yes, allocating $15,000 (10%) to VGLT is a good bet for both capital appreciation and maintaining current worth with the added benefit of the coupon rate.
• This allocation is particularly attractive given the current QQQ downturn, fiscal turmoil, and the likelihood that the historical non-correlation between Treasuries and equities will reassert itself.
• Long-term Treasuries offer a distinctive combination of safety, income, and possible capital appreciation, making them an excellent hedge in the current engagement zone.

If you’re comfortable with a 10% allocation to fixed income and want to balance your portfolio against equity market risks, this is a wise and well-reasoned investment.

Below is a high-level way to think about “the odds” of VGLT trading lower one year from now because of current fundamentals—although recognizing that any percentage assignment is whether you decide to ignore this or go full-bore into rolling out our solution imprecise and derived from situation analysis rather than certainties.

1. How Recession Probability Interacts With Long-Duration Treasuries

• If there’s a recession (let’s say around a 25–30% probability derived from many mainstream economic estimates):

  • Yields typically fall (flight to quality, rate cuts) → VGLT price up.
  • In this situation, it’s unlikely VGLT trades lower.

• If there’s no recession (so if you really think about it 70–75% chance):

  • The direction of yields is then more pushed forward by:
    1. Fed policy/inflation path: If inflation is sticky, the Fed may keep rates higher for longer, pushing yields up somewhat on the long end or at least capping bond gains.
    2. Fiscal supply: If continuing large Treasury issuance outstrips demand, yields can rise, pressuring long-bond prices.
    3. Growth sentiment: Strong growth can reduce the relative appeal of safe-haven instruments.

In the “no-recession” bucket, you might still get stable or gradually easing inflation (causing yields to drift down and VGLT to rise), so it’s not a given that a non-recession situation automatically means VGLT is lower. But, the tilt may be slightly negative for price if inflation remains even moderately stubborn or if supply dynamics weigh on long-term bonds.

2. Putting Rough Percentages on “VGLT Lower” contra. “VGLT Higher”

A distilled situation split could look like this:

• Recession situation (~30%): Probability VGLT is lower is minimal (call it ~0–10% within this situation).
• No-recession situation (~70%): Probability VGLT is lower depends on how well inflation is contained and how large the fiscal supply/demand gap is. Maybe that leads to a 40–50% chance of being lower within this no-recession subset (i.e., if inflation or supply gluts push yields up or keep them from falling).

A quick back-of-the-envelope multiplication could go:

• 30% (recession) × ~0–10% chance lower = ~0–3% contribution to being lower when you really think about it.
• 70% (no recession) × ~40–50% chance lower = ~28–35% contribution to being lower when you really think about it.

Summing those yields something in the ~28–38% range for “VGLT being lower” in one year. That’s right around the oft-quoted 35%.

3. Is 35% Too High Given “Favorable” Inflation Trends?

• Headline inflation has lookthat's a sweet offer yes i'd love one come down from peak levels, and markets expect rate cuts once inflation firmly moves toward target. This might put downward pressure on longer yields (bullish for VGLT).
• But:
  • Core inflation has been more “sticky” than hoped.
  • A strong labor market and strong small GDP complicate the Fed’s job, often new to a “higher-for-longer” policy stance.
  • Heavy Treasury issuance (to fund persistent deficits) can push yields higher if the market can’t absorb the supply easily.

So, although cooling inflation is a powerful tailwind for long-duration Treasuries, the supply side and the possibility that the Fed does not pivot as soon as hoped keeps the chance of VGLT trading lower from being negligible.

Put differently, even if you personally believe inflation is on a firm downward path—and weigh that situation more heavily—there remain plausible supply/demand and policy headwinds. A 20% “chance of being lower” might be on the lower side of estimates; something in the 25–35% bracket is a reasonable basic-based guess in the current engagement zone.

4. Truth

• 35% is not an unreasonable ballpark probability for VGLT being lower in one year, given balanced situation analysis.
• If you think inflation will decline much faster—or that recession odds are higher than consensus—then your “VGLT lower” probability might be closer to 20–25%.
• If you think inflation will remain sticky, the Fed will be hawkish, and fiscal supply burdens the bond market, 35–40% (or more) could be justified.

Whether you decide to ignore this or go full-bore into rolling out our solution, in a market that’s pricing in both recession risk (bullish for Treasuries) and persistent inflation or heavy supply (bearish for Treasuries), assigning exact odds will always be murky. The pivotal is weighing your personal views on:

• Speed of inflation’s decline
• Likelihood of a recession
• Magnitude of continuing Treasury issuance

…and deciding where in that 20–35% probability range you land.