EDV - TLT ETF: Lessons From Japan's Bond Cycle

2024-04-29 17:05:14 ET

Summary

• The iShares 20+ Year Treasury Bond ETF (TLT) provides exposure to long-duration treasury bonds.
• TLT investors may face significant price volatility due to long duration and interest rate uncertainties.
• Japan’s bond cycle has shown that inflation can become a lower priority when fiscal sustainability becomes a concern.
• And rate control can follow and push up bond prices, especially long-term bond prices, drastically.

TLT, inflation and fiscal sustainability

The iShares 20+ Year Treasury Bond ETF ( TLT ) provides investors with exposure to Treasury bonds with extended duration. As pointed out by the TLT ETF’s description (the emphases were added by me), it “ seeks to track the investment results of an index composed of U.S. Treasury bonds with remaining maturities greater than twenty years." As a result, TLT’s effective duration is more than 16 years as seen in the chart below and its weighted average maturity is more than 25 years....

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