Proprietary Data Insights
Financial Pros’ Top Bond ETF Searches in the Last Month
Financial Pros’ Favorite Bond ETFs
The recent Treasury selloff has many conservative investors licking their chops.
With the 10-year rate creeping towards 5%, many can’t wait for a chance to lock up their money at what’s likely to be a real rate of return above inflation.
However, it’s iShares 20+ Year Treasury ETF (TLT) that’s pulled in the most search volume from financial pros in the past month.
Here’s why they might be interested.
Key Facts About SMH
Treasuries come in different varieties. Some pay coupons (dividend like payments), while others are issued at a deeper discount to par value ($1,000), known as zeros.
They also have different maturities, ranging from days to years, the longest being a 30-year treasury.
During normal times, nearer-dated maturities pay lower rates than longer-dated ones.
Right now, that isn’t the case, largely because investors expect inflation to be higher now than in the future.
Thus, you get a yield curve that looks like this:
So, why are investors looking at the longer-dated treasuries that pay a lower interest rate?
Recently, we’ve seen the value of these bonds drop, increasing the interest rate.
The higher the rate goes, the more enticing it becomes to investors.
Why put your money at risk in the stock market when you can get a near-guranteed 5% for a decade or two, especially if inflation stays below 3%?
The ETF itself is composed of various bonds that expire at different times, with the weighted maturity at 25.5 years.
Once the Fed began to raise rates, treasury bonds lost a lot of value.
The cumulative returns below highlight how badly they’ve done over the last several years. This is largely due to treasury bonds trading at higher prices pre-pandemic when the Fed kept interest rates low.
Now, U.S Treasuries are just one type of bond available to investors.
Below are some other highlighted searched bond ETFs from financial pros.
Most of these ETFs come with very low fees. However, holding them for any length of time in the past decade hasn’t been a great investment.
Our Opinion 6/10
While the TLT is a fantastic trading vehicle, we think it’s more appropriate, if you can afford it, to purchase Treasury bonds individually.
Each typically trades at a discount to the $1,000 par value.
And at the moment, when short-term bonds pay a much higher rate, we see more reasons to own them until those rates come down or the longer-dated rates rise to meet them.
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