Long Term Treasury ETFs Shine

January 03, 2019

Even as equities tanked last month, there was still plenty of good cheer to be found in the bond markets—especially in some of the safest of assets: long-term government bonds.

It's a bit unexpected, given that bond yields have fallen precipitously, even after the Federal Reserve once again raised its benchmark interest rates on Dec. 19. Over the past few weeks, the yield on the 10-year Treasury has slipped from 3.24%, a seven-year high struck on Nov. 8, down to 2.69% on Dec. 31.

When interest rates rise, bond yields usually go up, too. However, in this case, yields have dropped because bond prices have risen; and those are up due to increased demand from investors fleeing the equity markets in favor of risk-off investments.

Long-Term Treasuries Outperform

Over the past 30 days, the six best-performing, nonleveraged Treasury ETFs also happened to be the six longest-term ones:

 

Best-Performing Treasury ETFs Of The Past Month
Ticker Fund Expense Ratio AUM 1 Month Duration YTM
ZROZ PIMCO 25+ Year Zero Coupon US Treasury Index ETF 0.15% $142.53M 8.26% 24.36 2.94%
EDV Vanguard Extended Duration Treasury ETF 0.07% $687.29M 8.08% 23.77 2.97%
SPTL SPDR Portfolio Long Term Treasury ETF 0.06% $1.55B 5.86% 16.97 2.94%
TLT iShares 20+ Year Treasury Bond ETF 0.15% $8.42B 5.85% 17.56 2.95%
VGLT Vanguard Long-Term Treasury Index ETF 0.07% $888.49M 5.62% 16.96 2.94%
TLH iShares 10-20 Year Treasury Bond ETF 0.15% $900.82M 4.09% 10.57 2.79%

 

The best-performing Treasury ETF was the $143 million PIMCO 25+ Year Zero Coupon US Treasury Index ETF (ZROZ), which also has the highest duration of any Treasury ETF. (Duration is a measure of sensitivity to interest rate risk.) ZROZ rose a jaw-dropping 8.3% last month.

Nipping at its heels was the $687 million Vanguard Extended Duration Treasury ETF (EDV), which rose 8.1%.

In comparison, the nine short and ultra-short-term Treasury ETFs on the market posted much weaker performance, even as record amounts of money flowed into them. The iShares 1-3 Year Treasury Bond ETF (SHY) alone took in $3.5 billion in new net inflows last month, even though the fund returned a measly 0.76%:

 

Short/Ultra-Short-Term Treasury ETFs, Performance Over Past Month
Ticker Fund Expense Ratio AUM 1 Month Duration YTM
SHY iShares 1-3 Year Treasury Bond ETF 0.15% $20.63B 0.76% 1.9 2.28%
VGSH Vanguard Short-Term Treasury Index ETF 0.07% $5.53B 0.83% 1.93 2.29%
SCHO Schwab Short-Term U.S. Treasury ETF 0.06% $4.25B 0.83% 1.87 2.28%
SPTS SPDR Portfolio Short Term Treasury ETF 0.06% $916.29M 0.75% 2.64 2.38%
TUZ PIMCO 1-3 Year US Treasury Index ETF 0.15% $55.23M 0.85% 1.8 2.28%
SHV iShares Short Treasury Bond ETF 0.15% $20.69B 0.20% 0.38 1.80%
BIL SPDR Bloomberg Barclays 1-3 Month T-Bill ETF 0.14% $8.57B 0.18% 0.17 1.55%
GBIL Goldman Sachs Access Treasury 0-1 Year ETF 0.12% $2.99B 0.03% 0.37 1.81%
CLTL Invesco Treasury Collateral ETF 0.08% $544.97M 0.17% 0.34 1.70%

 

$1B Into Long-Term Treasury ETFs

Investors typically don't seek out fixed-income instruments—especially not short-term Treasuries—for high-flying performance.

However, the strong returns from longer-dated Treasury ETFs will likely come as a welcome relief for investors rattled by whipsawing equity markets and a slowing U.S. economy.

The higher yields offered by longer-term Treasury ETFs can't hurt, either. Currently, the six long-term Treasury ETFs offer an average yield of 2.92%, compared with the nine short/ultra-short-term Treasury ETFs, which post an average yield of 2.04%.

Although short-term bond ETFs hoovered up the lion's share of the $17.4 billion of net flows into U.S. fixed-income ETFs last month, several long-dated Treasury ETFs also saw substantial inflows.

All told, long-term Treasury ETFs brought in $1.1 billion in new net inflows in December, or more than a third of the total $3.2 billion that went into these ETFs for 2018:

 

Flows Into Long-Term Treasury ETFs, Nov. 30 - Dec. 31, 2018
Ticker Fund Flows ($M)
TLT iShares 20+ Year Treasury Bond ETF 520.61
SPTL SPDR Portfolio Long Term Treasury ETF 286.95
TLH iShares 10-20 Year Treasury Bond ETF 210.88
EDV Vanguard Extended Duration Treasury ETF 89.27
VGLT Vanguard Long-Term Treasury Index ETF 31.63
ZROZ PIMCO 25+ Year Zero Coupon US Treasury Index ETF -22.30

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