Charlie Bilello, the chief market strategist at Creative Planning, highlighted that rising yields have badly beaten down the U.S. bond market, especially ETFs targeting the long-end of the yield curve.
The long-duration bond ETFs like PIMCO 25+ Year Zero Coupon U.S. Treasury Index ETF (NYSE:ZROZ), iShares 20+ Year Treasury Bond ETF (NASDAQ:TLT), Vanguard Long-Term Treasury ETF (NASDAQ:VGLT), and Vanguard Extended Duration Treasury ETF (NYSE:EDV) are among the laggards.
High Yields Hurt Bond ETFs
In Monday's post on X, Bilello said that ZROZ has dropped drastically by over 60% from its peak in March 2020. When bond yields rise, bond prices decline due to their inverse relationship.
"The 30-Year Treasury yield has moved from an all-time low of 0.8% in March 2020 to over 5% today," leading to the largest drawdowns in history, said Bilello. He described, "Long duration + Rising interest rates = Pain."
The 30-year yields are trading at the highest since July 2007. The 10-year yields rose to 4.51% from an all-time low of 0.32% in March 2020, while 2-year yields climbed to 4.07% from a record low of 0.23%.
ETFs in Focus
PIMCO 25+ Year Zero Coupon U.S. Treasury Index ETF
This fund tracks the BofA Merrill Lynch Long Treasury Principal STRIPS Index. It has $1.4 billion in assets under management (AUM) and trades in an average daily volume of 510,000 shares. It charges 0.15% in annual fees. ZROZ has lost 4.5% since the start of the year.
Benzinga Edge Stock Rankings indicate that ZROZ has a weak Momentum score in the 18th percentile. It maintains a weak price trend in the short, medium, and long term.
iShares 20+ Year Treasury Bond ETF
TLT follows the ICE US Treasury 20+ Year Bond Index and charges 15 bps in annual fees. It is among the most popular and liquid ETFs in the bond space, with AUM of $42.8 billion and an average daily volume of nearly 26 million shares. The ETF is down 2.8% year-to-date and about 44% from its March 2020 peak.
Benzinga Edge Stock Rankings indicate that TLT has a weak Momentum score in the 20th percentile. It maintains a weak price trend in the short, medium, and long term.
Vanguard Long-Term Treasury ETF
With an AUM of $10 billion, VGLT tracks the Bloomberg US Long Treasury Bond Index. It has an expense ratio of 0.03% and trades in an average daily volume of nearly 2 million shares. The ETF has shed 3% in value this year so far and about 67% since its March 2020 peak.
Benzinga Edge Stock Rankings indicate that VGLT has a weak Momentum score in the 22nd percentile. It maintains a weak price trend in the short, medium, and long term.
Vanguard Extended Duration Treasury ETF
EDV follows the Bloomberg U.S. Treasury STRIPS 20–30 Year Equal Par Bond Index. It has an expense ratio of 0.05% and trades in a volume of nearly 2 million shares per day on average. The ETF has $3.6 billion in AUM and has shed 3.7% since the start of the year. EDV is down about 67% since its March 2020 peak.
Benzinga Edge Stock Rankings indicate that EDV has a weak Momentum score in the 19th percentile. It maintains a weak price trend in the short, medium, and long term.
Bond ETFs Attract Inflows
While rising yields have hurt the performance, the fixed-income ETFs have attracted $156.19 billion in inflows so far this year, ahead of the $98.19 billion recorded during the same period last year. Strong inflows come despite persistent concerns around elevated Treasury yields and the Federal Reserve’s higher-for-longer stance, suggesting investors are positioning for a bond market recovery.
Photo courtesy: Jason Raff on Shutterstock.com
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