Because zero-coupons do not deliver regular income, the bonds and ETFs such as ZROZ and EDV are vulnerable to increase in short-term interest rates. These ETFs are extremely sensitive to interest rate fluctuations due to durations north of 27 years for ZROZ and 24.9 years for EDV. EDV and ZROZ have already shown investors the risks of stripped coupons in rising rate environments. When Treasury yields spiked in 2013, EDV and ZROZ lost an average of 20.5%. [Long Duration ETFs Will Suffer if Rates Rise]
“I’ve heard one pundit on CNBC blame last night’s selling on margin calls. Bonds have been falling since February. We continually monitor TLT and ZROZ,” said Street One Financial Vice President Paul Weisbruch in a note out Wednesday. “They have both broken through their 200D-SMA’s and are about to test November 2014 lows. There appears to be fairly good support at 118.30 for the TLT and at 107.50 for the ZROZ. The bias will remain to the downside while they remain below their 200DSMA’s.”
Since the start of the current quarter, EDV and ZROZ have lost over $23 million on a combined basis.
Vanguard Extended Duration Treasury ETF
