Long Term Treasury ETFs Shine

As investors rush toward cashlike instruments, longer-term Treasury ETFs post strong returns.

Reviewed by: Lara Crigger
Edited by: Lara Crigger

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
TickerFundExpense RatioAUM1 MonthDurationYTM
ZROZPIMCO 25+ Year Zero Coupon US Treasury Index ETF0.15%$142.53M8.26%24.362.94%
EDVVanguard Extended Duration Treasury ETF0.07%$687.29M8.08%23.772.97%
SPTLSPDR Portfolio Long Term Treasury ETF0.06%$1.55B5.86%16.972.94%
TLTiShares 20+ Year Treasury Bond ETF0.15%$8.42B5.85%17.562.95%
VGLTVanguard Long-Term Treasury Index ETF0.07%$888.49M5.62%16.962.94%
TLHiShares 10-20 Year Treasury Bond ETF0.15%$900.82M4.09%10.572.79%


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
TickerFundExpense RatioAUM1 MonthDurationYTM
SHYiShares 1-3 Year Treasury Bond ETF0.15%$20.63B0.76%1.92.28%
VGSHVanguard Short-Term Treasury Index ETF0.07%$5.53B0.83%1.932.29%
SCHOSchwab Short-Term U.S. Treasury ETF0.06%$4.25B0.83%1.872.28%
SPTSSPDR Portfolio Short Term Treasury ETF0.06%$916.29M0.75%2.642.38%
TUZPIMCO 1-3 Year US Treasury Index ETF0.15%$55.23M0.85%1.82.28%
SHViShares Short Treasury Bond ETF0.15%$20.69B0.20%0.381.80%
BILSPDR Bloomberg Barclays 1-3 Month T-Bill ETF0.14%$8.57B0.18%0.171.55%
GBILGoldman Sachs Access Treasury 0-1 Year ETF0.12%$2.99B0.03%0.371.81%
CLTLInvesco Treasury Collateral ETF0.08%$544.97M0.17%0.341.70%


$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
TickerFundFlows ($M)
TLTiShares 20+ Year Treasury Bond ETF520.61
SPTLSPDR Portfolio Long Term Treasury ETF286.95
TLHiShares 10-20 Year Treasury Bond ETF210.88
EDVVanguard Extended Duration Treasury ETF89.27
VGLTVanguard Long-Term Treasury Index ETF31.63
ZROZPIMCO 25+ Year Zero Coupon US Treasury Index ETF-22.30

TLT Nets $500M

Individual long-term Treasury ETFs saw spikes of interest from investors. For example, TLT's net December inflows of $521 million was the 11th-highest of all bond ETFs.

In addition, both the SPDR Portfolio Long Term Treasury ETF (SPTL) and the iShares 10-20 Year Treasury Bond ETF (TLH) saw substantial one-day inflows in the last trading days of 2018. On Dec. 24, SPTL and TLH attracted $184 million and $185 million in new net money, respectively.



Sources: ETF.com, FactSet; data as of Jan. 2, 2019


Cloudy Crystal Ball

However, it's unclear how much longer the good performance for long-dated Treasury ETFs can last.

On the one hand, a slowing U.S. economy, middling inflation and continued political uncertainty in Washington could put additional downward pressure on bond yields, lifting prices further and benefiting longer-term Treasury ETFs (read: "How Do Bond ETFs Work?").

On the other hand, additional interest rate hikes could lift begin lifting bond yields again, hurting their market value. High-duration fixed-income assets are particularly sensitive to interest rate increases, and the Fed has already stated it plans to continue lifting rates in 2019, though perhaps not at the same brisk rate as 2018.

We'll just have to wait and see.

Contact Lara Crigger at [email protected]


Lara Crigger is a former staff writer for etf.com and ETF Report.