Rising interest rates are hindering long-dated fixed income traded funds, including the iShares 20+ Year Treasury Bond ETF (NASDAQ: TLT), but some yield-hungry investors are renewing their affinity for TLT.
The $9.31 billion TLT “seeks to track the investment results of an index composed of U.S. Treasury bonds with remaining maturities greater than twenty years,” according to iShares.
Despite a tighter monetary policy out of the Federal Reserve with two more interest rate hikes planned later this year, Treasury bonds and related ETFs have been gaining momentum in recent weeks.
“The iShares 20+ Year Treasury Bond ETF, known as TLT, took in $1.6 billion last week, the most since September 2017. The fund also posted five straight days of inflows, the longest streak in almost a year,” reports Bloomberg.
Short-term Treasury yields usually rise along with investor expectations for tighter Fed rate policies while longer-term yields are more sensitive to growth and inflation sentiment. Investors typically monitor the yield curve, or difference between long- and short-term yields, as an indicator for economic growth. The last time short-term rates exceeded long-term yields was before each recession since at least 1975, or something also known as an inverted yield curve.
Tempting ‘TLT’ ETF
TLT has 30-day SEC yield of 2.92%, perhaps explaining some of the recent enthusiasm for the fund. The ETF has an effective duration of 17.47 years. Duration measures a bond’s sensitivity to changes in interest rates. Bond market observers widely expect the Federal Reserve to raise interest rates 25 basis points this month and again in December.
“TLT is popular with institutional investors looking for short-term bets, making it more of a trading vehicle than an investment vehicle, according to Mark Hackett, chief of investment research at Nationwide Funds Group,” reports Bloomberg.
Related: 3 Short-Term Bond ETFs for Income Hunters
TLT holds 32 bonds all of which carry AAA credit ratings. The ETF charges 0.15% per year, or $15 on a $10,000 investment.
For more information on the fixed-income market, visit our bond ETFs category.