Recession Risk Ruled Out? That Makes VGLT More Attractive

The debate over whether the U.S. economy will enter a recession in 2025 remains contentious. While Federal Reserve models and economists clash over the probability—ranging from 22% to a dire 60%—one investment vehicle stands out as a compelling hedge against uncertainty: the Vanguard Long-Term Treasury ETF (VGLT). This article examines how recession risks, whether confirmed or not, amplify VGLT’s appeal as a strategic portfolio anchor.

The Recession Debate: Models at Odds

The Federal Reserve’s conflicting forecasts underscore the ambiguity. The Atlanta Fed’s GDP Now model projected a -2.8% contraction in Q1 2025, citing tariff-driven import spikes and inventory buildup. Meanwhile, the New York Fed’s Nowcast model predicted +2.9% growth, emphasizing labor market resilience. Compounding this uncertainty is the yield curve inversion, where short-term rates briefly surpassed long-term rates—a historically reliable (if imperfect) recession signal.

J.P. Morgan’s stark 60% recession probability hinges on extreme trade policies, including a 145% tariff on Chinese imports and a universal 10% global tariff, which could slash GDP by 3%. Yet Mariner Wealth Advisors counter with a 25% chance, citing stable job creation (4.1% unemployment) and positive PMI readings. The Fed’s delayed easing—rate cuts starting in September 2025—reflects this tension.

Why VGLT Shines Regardless of Recession

VGLT, which tracks long-term U.S. Treasuries (10–30 years), offers a duration of 14.67 years, making it highly sensitive to interest rate changes. This characteristic positions it as a risk-off haven, regardless of whether a recession materializes.

Key Advantages of VGLT:

1. Low Cost Leadership: With an expense ratio of just 0.03%, VGLT’s Total Cost of Ownership (TCO) outperforms peers like iShares’ TLT (0.15%). Over time, this savings compounds significantly.
2. Yield Stability: As of early 2025, VGLT offered a yield to maturity of 4.86%, benefiting from the end of the 522-day yield-curve inversion. Even in a 60% tariff scenario, Treasuries’ zero default risk shields investors from corporate credit risks.
3. Diversification Power: During Q1 2025 volatility, VGLT exhibited a negative correlation with equities, reducing portfolio swings. Its beta of 0.05 means it moves minimally with the market, stabilizing returns.

Technical Outlook: Mixed Signals, Strategic Opportunity

VGLT’s -11.05% 3-year return reflects the pain of rising rates, but its 3.96% 1-year return hints at a turning point. Analysts note that its horizontal trading range ($53.54–$57.30) creates a tactical entry point near $55.57 (key support). While short-term resistance persists, the MACD bullish signal and $76.18 year-end price target (+36% upside) suggest a strategic buy for long-term horizons.

Risks and Considerations

• Interest Rate Sensitivity: A sudden Fed rate hike could depress prices.
• Duration Risk: Its 14.67-year duration amplifies volatility in rising-rate environments.
• Recession Timing: If J.P. Morgan’s 60% scenario plays out, VGLT’s inverse relationship with rates (as demand for Treasuries surges) could amplify gains.

Conclusion: VGLT’s Case is Strong, Even Without a Recession

The 60% recession probability cited by J.P. Morgan creates urgency for defensive assets, but VGLT’s appeal extends beyond doomsday scenarios. Its low cost, high yield, and low correlation to equities make it a core holding for any portfolio, regardless of the economic outlook.

• Strategic Edge: A $10k investment in VGLT yields ~$486 annually at 4.86%, with principal stability in a recession or recovery.
• Data-Backed Performance: Despite a 3-year slump, VGLT’s $0.03 expense ratio ensures it outperforms peers over time.
• Fed Policy Tailwind: The delayed rate cuts (starting Q3 2025) signal easing is imminent, which typically boosts long-term Treasury prices.

In a world of conflicting signals, VGLT offers clarity: a low-risk, high-yield hedge that thrives in both calm and storm. Investors should consider allocating 5–10% of fixed-income portfolios to this ETF, leveraging its duration advantage to weather uncertainty—and capitalize on it.

The data speaks plainly: VGLT’s cost efficiency and strategic flexibility make it a standout choice in any economic climate.