RagingBull Exclusive!

Kyle Dennis’ clients know a secret.

My 5k Account is now $37,653. My larger account has gone up 68%” – Michael C

“I Started this service and had $4500.00 in my trade account. Value now about 8 months, $27k” – Mark M.

“Wanted to thank Kyle, up 200% on one of my accounts in Just 2 weeks” – Dylan T

The paradox in the iShares 20+ Year Treasury Bond ETF

Jeff BishopJeff Bishop ·

The iShares 20+ Year Treasury Bond ETF (TLT) is one of the most widely-followed fixed-income exchange-traded funds out there; it’s also proven to be an equally big paradox.

That’s because the adage in bonds is “As interest rates rise, bond prices fall.” When bond prices fall, bond funds and ETFs suffer.

While that is true for the short run, bond funds can actually benefit from a rise in rates long-term. Let’s see how that paradox plays out in TLT.

iShares 20+ Year Treasury Bond ETF

The iShares 20+ Year Treasury Bond ETF aims to track the ICE U.S. Treasury 20+ Year Bond Index. The ETF currently offers a distribution yield of 2.50% and a 30-day SEC yield of 2.64%. Additionally, TLT has an effective duration of 17.61 years. Moreover, it had a weighted average coupon of 3.16% and a weighted average maturity of 26.20%.

That effective duration of 17.61 years means if interest rates rise instantaneously by 1%, TLT would be expected to fall by 17.61% (and the opposite is true if rates fall). Truthfully, however, that big a move is unlikely, because buyers would step in to buy the ETF at a relatively steep discount, and the resulting bounce-back from any rise in rates would be the paradox in this long-term bond fund.

The paradox

If rates rise, TLT would fall short-term, but it’s a potentially different story long-run.

Here’s what you need to know. After the initial drop in bond prices after a rate hike, fund managers can reinvest the income generated from the bonds they hold at higher yields. This makes up for at least some of the short-term decline caused by the rate hike.

Thus, if you’re invested in or watching TLT, rate hikes are a factor and a short-term concern, but you shouldn’t be as stressed about the long run. because you will expect rising yields to help you out over time.

The bottom line

Although interest rate hikes cause fixed-income related securities to fall over the short term, bond funds like TLT may actually benefit over time. Factor that into your decision-making as you determine if a long-term bond fund like TLT is worth a piece of your portfolio.


Jeff Bishop is lead trader at TopStockPicks.com. He runs short-term trading strategies, using stocks, options and leveraged ETFs.

Trending Now

Bull or Bear Market….It Doesn’t Matter

Kyle Dennis’ new, 5 min strategy is poised to double account sizes weekly! “I got out of GE trade at 379% $0.16-$0.77, thanks Kyle!” Said client Lance P. Check out the free training that started it all. (View Free Training)

SuperNova Service Leading Clients to 5-Figure Profits Consistently

“BOOM!!! Booked another $13,985 in profits on my long position $VMNGF. Great report came out premarket. Thanks Jeff at SuperNova for teaching me to make $$$ in the market.” Said Todd V. Jeff Williams is helping transform small accounts daily. Don’t miss his free walkthrough. (Watch Now)

Jeff Bishop, RagingBull.com Co-Founder, “Trading My Strategy Takes A Few Minutes a Day!” 

“Jeff, I have to say I was a little gun shy, but I bought the lifetime service (to Bullseye Trades) Friday night. First trade with your service…in LULU, 205 Calls at $4.70. (I) was going to be away from all internet connections for the next 3 days. It hit my sell price at $6.25 ;)” said James W.    (Read More)

Be a Better Stock Trader, Starting Today

Get the expert insights, tips and strategies you need to optimize your trading skills and profiles