As investors reevaluate the timing of possible rate cuts by the Federal Reserve this year, there has been significant inflow of funds in the long-term bond ETF market, indicating that the market's expectations for economic prospects and monetary policy are changing.

This week, BlackRock's $54 billion ETF broke the record for the largest single-day inflow since its founding in 2002. On Monday alone, the ETF attracted $2.7 billion in inflows. Although the fund has accumulated losses of nearly 3% this year, the net inflow of funds since the beginning of the year has reached about $4.4 billion.$iShares 20+ Year Treasury Bond ETF (TLT.US)$This phenomenon occurred as investors began to make mid-year portfolio adjustments. Traders are generally betting that the Federal Reserve will cut rates by more than 100 basis points in the next nine months, or at least four 25-basis-point cuts, because economic growth is slowing down.

BI ETF analyst Athanasios Psarofagis pointed out that it looks like investors are once again fighting against the Federal Reserve. They are betting on a rate cut by the Federal Reserve - if they are correct, the price trend will be very dramatic. He added that mid-year portfolio rebalancing may also be one of the reasons for the inflow of funds.

As investors prepare for possible rate cuts by the Federal Reserve, long-term bonds may yield returns. Many investors are seeking safe-haven assets to cope with the risk of a possible economic slowdown. The index tracking the total return of US Treasury bonds has risen by about 1.7% since June, and is expected to achieve its best monthly performance since 2024, almost eliminating all losses this year.

The Federal Reserve's dot plot suggests that Fed officials believe that rates will be cut by 25 basis points before the end of this year and by a total of 125 basis points by the end of 2025. However, pricing in the interest rate swap market indicates that investors expect the rate cut to be even greater, with a total of 165 basis points expected by the end of next year.

This situation highlights the difference of opinions between market participants and the Federal Reserve on economic prospects and policy direction. Investors seem to be more concerned about the risk of economic growth slowing down, so they judge that the Federal Reserve may have to take more aggressive rate cuts.

However, it is worth noting that there are risks associated with betting on aggressive rate cuts. If the economy performs better than expected or if inflation pressures persist, the Federal Reserve may maintain a high interest rate policy for a longer period of time, which will have a negative impact on long-term bond investments.

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