Long-term Treasury ETFs, led by the iShares 20+ Year Treasury Bond ETF (TLT) , have gained investor attention as their interest rate sensitivity can lead to outsized gains in a falling rate environment.
For example, in the past year, TLT's price has jumped 12%, as inflation has cooled, giving the Federal Reserve the green light to lower its key lending rate (interest rates have an inverse relationship with bond prices).
While these Treasury bond funds can provide investors with a range of benefits, including higher yields and greater long-term returns compared to short-term bond ETFs, there are some risks to consider before buying shares.
Learn how long-term Treasury bond ETFs work, including examples, how they are taxed, and the pros and cons associated with investing in them.
What Is a Long-Term Treasury ETF?
A long-term Treasury ETF is an exchange-traded fund that invests primarily in U.S. Treasury securities with longer maturities, which are generally 10 years or more. These ETFs provide investors with exposure to the long-term segment of the U.S. Treasury bond market by passively tracking a benchmark index, such as the IDC U.S. Treasury 20+ Year Index.
U.S. Treasury securities are debt instruments issued by the U.S. government to finance its operations and pay off existing debt. They are considered to be among the safest investments in the world because they are backed by the full faith and credit of the U.S. government.
However, it's important to note that long-term Treasury ETFs are not without risks. They are still subject to interest rate risk, inflation risk and the potential for changes in market conditions that can impact the value of the underlying bonds and the ETF itself.
Which ETFs Are Considered Long-Term Treasury?
Long-term Treasury ETFs typically hold Treasury bonds with maturities of 10 years or more. Therefore, ETFs that are considered long-term Treasury may include 10+ year Treasury ETFs and 20+ year Treasury ETFs. These ETFs may also include TIPS ETFs, zero-coupon Treasury bond ETFs and Treasury Strips ETFs.
Types of Long-Term Treasury Bond ETFs
Top Long-Term Treasury ETFs List by AUM
|
Ticker |
Fund |
Expense Ratio |
AUM |
SEC Yield |
|
TLT |
iShares 20+ Year Treasury Bond ETF |
0.15% |
$61.4B |
4.06% |
|
VGLT |
Vanguard Long-Term Treasury Index ETF |
0.04% |
$14.9B |
4.13% |
|
SPTL |
SPDR Portfolio Long Term Treasury ETF |
0.03% |
$11.7B |
4.14% |
|
TLH |
iShares 10-20 Year Treasury Bond ETF |
0.15% |
$8.1B |
3.99% |
|
EDV |
Vanguard Extended Duration Treasury ETF |
0.06% |
$4.2B |
4.24% |
|
ZROZ |
PIMCO 25+ Year Zero Coupon US Treasury Index ETF |
0.15% |
$1.7B |
3.81% |
Data as of August 4, 2024. Leveraged ETFs were not included in our search.
The Pros and Cons of Investing in Long-Term Treasury ETFs
Long-term Treasury ETFs have many advantages, including the potential for higher yields and higher long-term returns compared to Treasury bonds with shorter maturities. However, investing in these bonds has multiple risks, such as interest rate sensitivity, for investors to consider.
Here are some of the pros and cons of investing in long-term Treasury bond ETFs:
Pros
Cons
How Are Long-Term Treasury ETFs Taxed?
Long-term Treasury ETFs are taxed in a similar manner to other bond ETFs but may offer some tax benefits. For example, income from Treasury bonds is generally taxed as income at the federal level but is tax free at the state and local level. Capital gains tax may also apply to Treasury ETFs.
Here are some key points regarding long-term Treasury bond ETF taxation :
Bottom Line on Long-Term Treasury Bond Funds
ETFs that provide investors with exposure to long-term Treasury bonds can be used for a range of purposes, including income and price appreciation. However, it's important for investors to carefully consider their investment goals, risk tolerance and the current market environment before investing in a long-term Treasury ETF or any other investment product.
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