Zero-coupon bonds often sell at a sizable discounts to face value because buyers do not get a steady stream of income as they do with traditional bonds. As zero-coupon Treasurys get close to maturity, their value increase with buy-and-hold investors getting the full value of the bond when it matures.

Because zero-coupons do not deliver regular income, the bonds and ETFs such as EDV are vulnerable to increase in short-term interest rates.

“Bottom line: While cost-effective, EDV is a Vanguard ETF that is highly sensitive to changes in interest rates, meaning that if the Fed reverses course, this ETF could be punished,” adds InvestorPlace.

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Vanguard Extended Duration Treasury ETF

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