TLT Stock and Bond ETFs: What Are They and How to Trade Them?

Before you decide to start trading TLT stock or options on TLT, make sure you know all the facts. If you don’t already know, corporations, countries, municipalities, and states or provinces use bonds to raise money. Think about it like this — it wouldn’t make sense for a government to issue stock like a normal company since they would have to report earnings and disclose classified information.

Moreover, if companies do not want to dilute their equity, they may look to the bond market to borrow money from the public. Now, some traders have a preconceived notion that bonds are boring and you can’t make money in them. However, if you actually time your entry with precision, you could potentially generate profits like this in the iShares 20+ Year Treasury ETF (TLT).

If you’re interested in learning how to trade TLT stocks and generate over 100% in profits, check out this options trading guide here. Before we discuss the intricacies behind bond ETFs and TLT, let’s look at some key factors affecting bonds.

What Is TLT Stock?

TLT is the NASDAQ symbol for the iShares 20+ Year Treasury ETF. Ranked as one of the best government long bonds by sources such as U.S. News and World Report, TLT invests about 90% in the underlying index (ICE U.S. Treasury 20+ Year Bond Index) and 95% in U.S. government bonds. Like a mutual fund, an ETF is structured to track a particular index, and TLT tracks the underlying index.

Large brokerage firms such as iShares create an ETF with a mix of bonds, stocks, and other assets. Like traditional stocks, bond ETFs like TLT trade on the stock market daily. When you purchase a share of an ETF, you buy a share of each of its held assets and will receive dividends and interest just like direct investors do.

What Is an ETF?

A bond ETF is an exchange-traded fund that you would invest in a fixed-income security like a treasury or corporate bond. Bond ETFs give you the ability to invest and gain exposure to the benchmark bond indices in a relatively inexpensive way. There are some risks associated with ETFs, but that shouldn’t stop you from looking at ETFs like TLT that trade on the stock market. Here are some factors to think about when it comes to investing in bond ETFs:

  • Changes to interest rates can affect bond ETFs.
  • Bond ETFs don’t gain much at the end of maturity, so there’s no guarantee that your principal will be fully repaid.
  • Secondary markets aren’t usually available for ETFs.

Even though these factors can affect the principals of the bonds, ETFs are an excellent method for getting exposure to the bonds market easily and with the same transparency of the stock market.

Bond Trading Explained

Bonds are also known as fixed-income securities because the lender will receive a fixed amount of cash if they hold the bonds until the maturity, or expiration, date. Similar to options, bonds have a useful life. However, with bonds, the principal amount is repaid along with interest payments, if any. For example, if you purchase a 20-year U.S. Treasury bond with a face value of $1,000 (also known as the principal), you would receive $1,000 at the maturity date.

Bonds tie up your capital while returning only a percentage of interest. For example, 20-year U.S. Treasury bonds have low yields, generally around 3%. If you buy this type of bond with a face value of $10,000, you would only receive $300 in installments, which could be monthly, quarterly, semi-annually, or annually. If you think you can significantly outperform those returns, it would not make sense to buy bonds and hold them until maturity.

Factors Affecting Bond ETF Prices

With bond exchange-traded funds (ETFs) like TLT stock, you can gain exposure to bonds without tying up your capital for decades. Before we discuss how to trade bond ETFs like TLT, keep these essential factors in mind:

  • When stocks are rising, traders typically rotate out of bond ETFs and focus on risky assets. On the other hand, when the stock market is crashing, traders tend to flock to bond ETFs like TLT.
  • Bond ETFs are affected by supply and demand, just like ETFs tracking stocks.
  • Fluctuations in interest rates affect bond ETFs.
  • Macroeconomic variables such as inflation and credit ratings will affect the bond market.
  • In the U.S., the Federal Reserve or Federal Open Market Committee (FOMC) can drive bond prices either higher or lower.

How Interest Rates Affect Bond ETFs

When the FOMC decides to raise interest rates, bond prices fall. On the other hand, when the FOMC cuts interest rates, bond prices tend to rise. This occurs because bonds have yields, also known as the discount rate, of cash flows. For example, bonds with lower yields tend to have lower prices. Now, the useful life of the bond also plays a factor in the yield.

The further the maturity date, the higher the yield since there is increased risk over the long term.

How does the Fed come into play? The FOMC has monetary policy tools that affect bond ETFs. For example, if the FOMC sees increasing inflation rates, it might look to increase interest rates to curb inflation. Consequently, this would cause bond prices to decrease. The opposite is true during deflationary periods or a weak economic environment. Let’s look at the iShares 20+ Year Treasury Bond ETF (TLT).

TLT Stock: iShares 20+ Year Treasury Bond

Before you decide to start trading TLT or options on TLT, make sure you know all of the facts and read the prospectus. TLT tracks the ICE U.S. Treasury 20+ Year Bond Index, also known as the underlying index, comprised of U.S. Treasury bonds with remaining maturities of more than 20 years. That said, this bond ETF provides exposure to long-term U.S. Treasury bonds and could potentially be used to speculate shifts in trends in the bond market. Here are some key characteristics to keep in mind:

  • Effective duration
  • Changes in interest rates
  • Economic variables

For example, TLT has an effective duration of 17.34 years. Keep in mind, this figure will vary over time. If interest rates rise by 1%, instantaneously, TLT would be expected to drop by 17.34%. On the other hand, if interest rates were cut by 1%, TLT would rise by 17.34%. Moreover, if the FOMC is looking to raise interest rates, you will most likely see some volatility in TLT. That said, if you want to trade TLT, you need to stay current with whatever the Federal Reserve is doing and saying about monetary policy.

Staying Current with Federal Reserve and FOMC

When you invest in a bond ETF like a TLT, it’s crucial to stay up to date in relation to initiatives, adjustments, and changes that the Federal Reserve and FOMC enact so that you can make decisions in your financial best interests. The Federal Reserve and FOMC have methods in place that maintain your security when you use their resources to stay updated on the current status of the market. Here are some additional ways to take advantage of these resources so that you’re always knowledgeable about what’s going on in the current market:

  • Use the Fed’s Account Management Information (AMI) and Daylight Overdraft Reports applications to check and manage your accounts.
  • Visit the Federal Reserve website and resources to stay current on industry standards, interest rates, and more so that you always know the status of the market.
  • Opt in to email notifications from the Federal Reserve to stay current on market fluctuations like interest rate changes, market news, and other current information.

TLT Stock Trading Example

When trading stock like TLT, I like to focus on chart patterns and macroeconomic variables. For example, here’s how the trade in TLT materialized:

  • The markets have been strong, but bonds did not dip. If the stock market was actually that strong, you would see traders and investors placing more money into risky assets like stocks. However, at the time, we actually saw outflows from risky ETFs into more stable ETFs. That signaled to me that the smart money was protecting their position.
  • The “money pattern” flashed a buy signal.

Here’s a look at the chart I was watching in TLT.

You can see the blue line above the red line in the encircled area. That let me know it was time to start buying call options in TLT. You can clearly see where my stop loss and target area were.


If you look at the chart, it was a bit of a bumpy ride. Nonetheless, I was able to lock in some big profits in TLT. If you have the right game plan, focus on macroeconomic variables and the money pattern, and understand your options, it’s not crazy to see profits like this:

Final Thoughts About TLT Stocks

TLT stock could be a great vehicle to gain exposure to the bond market if you know how to do it right. When continuing your journey to learn how to trade TLT stock, keep these key points in mind:

  • Politics, economics, and credit ratings can move TLT.
  • Make sure to stay up to date on the FOMC and any moves it makes.
  • Take into account the trajectory of interest rate changes and the effective duration.
  • Look at moving averages on the hourly chart.

Keep in mind, the pattern I used to spot the trade in TLT isn’t only limited to bond ETFs.