Being one of the safe havens, Treasury bonds (especially
the long dated ones) had a terrific run last year, capping
off their solid run following a series of global economic crises.
This was due to few quantitative easing programs by the Federal
Reserve, as well as 'Operation Twist' which was aimed at keeping
long-term interest rates low.
However, beginning this year, investors are shifting their
preferences to higher risk asset classes such as U.S. equities
buoyed by improving global economic conditions. As a result,
Treasuries had seen a massive sell-off in the first quarter
Time to Exit Treasury Bond ETFs?
Now, with a disappointing March U.S. jobs report, weakening
global sentiments and Eurozone financial strains, investors are
again returning to the Treasury bond market in the second
quarter, showing huge confidence with respect to this asset
class. Further, aggressive easing measures by the Bank of
Japan also encouraged investors to enter into the bond
These factors have pushed Treasury yields lower and bond
prices higher. In fact, Treasuries have recorded the biggest
weekly rally in 10 months in the first week of April. Yields on
30-year Treasuries fell below 3% for the first time since
January, while yield on 10-year note fell to 1.764%, the lowest
level since Dec 31, 2012.
Though yields might climb if economic data improves in the
coming weeks, uncertain growth in the U.S. and euro zone as well
as geopolitical tension in East Asia have bolstered the demand
for even these long-term Treasury bonds. Hence, any sell-off in
Treasury bonds might be viewed as a buying opportunity, at least
with rates trending lower (read:
Treasury Bond ETFs: Still Room to Run?
In this backdrop, investors seeking to take advantage of the
higher bond prices might try their luck with a long-term Treasury
ETF. While there are a couple of choices in the space, we have
highlighted the three most popular funds, which could be good
avenues to park money with higher yields at this time (see more
iShares Barclays 20+ Year Treasury Bond ETF (
This fund is the biggest and most popular
in the long-term Treasury bond space. TLT can be thought of as a
'plain vanilla' Treasury bond ETF which targets the long end of
the yield curve.
The ETF tracks the Barclays Capital U.S. 20+ Year Treasury
Bond Index with a weighted average maturity of 27.69 years. Being
a long-term treasury bond ETF, it carries a high interest rate
risk as measured by the effective duration of 17.25 years.
The product has a concentrated portfolio of 22 securities in
its portfolio with around 73.25% of its total assets invested in
the top 10 holdings. TLT was launched in July 2002 and since then
has managed to amass an asset base of about $3.5 billion. It
charges investors 15 basis points in fees and expenses (read:
Buy These Bond ETFs for Income and
TLT has a distribution yield of 2.01% and has returned 1.35%
in the year-to-date timeframe. In fact, the fund has added 4.30%
alone in the first week of April. Currently, the ETF has a Zacks
Rank of 3 or 'Hold'.
Vanguard Long Term Government Bond ETF (
This ETF follows the Barclays Capital U.S. Long Government
Float Adjusted Bond Index. The index measures the performance of
U.S Treasury or U.S. government securities having a residual
maturity of more than 10 years.
Launched in Nov 2009, VGLT has a portfolio of 64 securities
with a yield to maturity of 2.90%. The ETF has a weighted average
maturity of 24 years and an average duration of 16.4 years. The
fund has an asset base of $259.3 million and charges investors 12
basis points in expenses per year.
The product has returned 1.26% so far in the year and 3.73%
last week. Further, it pays a good dividend yield of 2.51% (read:
3 ETF Strategies For Long Term Success
VGLT also has a Zacks ETF Rank of 3 or 'Hold.'
Vanguard Extended Duration Treasury ETF (
Launched in Dec 2007, this fund offers a STRIPS play on the
Treasury bond market. This means that the interest payments and
principal repayments are made independent of each other and are
treated as separate components.
EDV tracks the Barclays Capital U.S. Treasury STRIPS 20-30
Year Equal Par Bond Index. The index measures the returns of U.S.
Treasury securities which are highly sensitive to interest rate
changes and have residual maturities ranging from 20 to 30
While this might seem like an enticing option for investors,
it is worthwhile to note that this is a more volatile investment
strategy. Investing in EDV requires a big appetite for risk as an
average duration of 26.0 years indicates that its interest rate
risk is quite high.
With holdings of 54 securities, the product targets the
longest maturity bucket in the treasury yield curve, and has an
impressive distribution yield of 6.74%, which is far superior to
the other funds in the space (read:
Time for the Convertible Bond ETF?
EDV has amassed $182.5 million in AUM while charging 12 bps in
fees per year from investors. The ETF added 1.87% year-to-date,
with a 7.12% gain in the first week of April. Currently, the ETF
has a Zacks ETF Rank of 3 or 'Hold'.
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VANGD-EX DUR TR (EDV): ETF Research Reports
ISHARS-BR 20+ (TLT): ETF Research Reports
VANGD-LT GOV BD (VGLT): ETF Research Reports
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