Treasuries are poised for their longest monthly winning streak in three years on the expectation that the Fed will cut rates in September. Notably, U.S. government bonds are set for the fourth month of gains, returning 1.5% in August, which would be the longest run since July 2021.
Amid the surging Treasury market, many ETFs have witnessed an upside this month. We have highlighted five that have led the way higher this month. These are PIMCO 25+ Year Zero Coupon U.S. Treasury Index ETF ZROZ, iShares 25+ Year Treasury STRIPS Bond ETF GOVZ, Vanguard Extended Duration Treasury ETF EDV, BondBloxx Bloomberg Twenty Year Target Duration US Treasury ETF XTWY and iShares 20+ Year Treasury Bond ETF TLT.
Federal Reserve Chair Jerome Powell signaled that interest rate cuts are coming in September, citing easing inflation and a weakening job market. At the Jackson Hole symposium last week, Powell said “the time has come” to lower borrowing costs in the light of a diminishing upside risk to inflation and moderating labor demand.” “The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks.”
The probability of a 25-bps rate cut stands at 69.5%, while that of a 50-bps cut is at 30.5%, according to the latest CME Group's FedWatch tool. Swap traders are pricing in about 100 basis points of easing this year, which implies a reduction at every remaining policy meeting through December, including one 50-bps cut (read: Rate Cut in the Cards? ETFs to Play).
Let’s delve deeper into the abovementioned ETFs:
PIMCO 25+ Year Zero Coupon U.S. Treasury Index ETF (ZROZ) – Up 8.4%
PIMCO 25+ Year Zero Coupon U.S. Treasury Index ETF offers exposure to the long end of the yield curve. It follows the BofA Merrill Lynch Long Treasury Principal STRIPS Index and holds 24 securities in its basket. The effective maturity and the effective duration of the fund are 27.25 years and 26.99 years, respectively.
PIMCO 25+ Year Zero Coupon U.S. Treasury Index ETF has $1.7 billion in AUM and an average daily volume of 416,000 shares. It charges 15 bps in annual fees.
iShares 25+ Year Treasury STRIPS Bond ETF (GOVZ) — Up 8.2%
iShares 25+ Year Treasury STRIPS Bond ETF offers exposure to U.S. principal STRIPS (Separate Trading of Registered Interest and Principal Securities) with remaining maturities of at least 25 years. It tracks the ICE BofA Long US Treasury Principal STRIPS Index, holding 21 bonds in its basket. iShares 25+ Year Treasury STRIPS Bond ETF has an average maturity of 27.29 years and an effective duration of 26.74 years.
iShares 25+ Year Treasury STRIPS Bond ETF has amassed $367.3 million in its asset base and charges 10 bps in fees per year. GOVZ trades in an average daily volume of 581,000 shares.
Vanguard Extended Duration Treasury ETF (EDV) — Up 7.1%
Vanguard Extended Duration Treasury ETF provides exposure to the long-term Treasury STRIPS market by tracking the Bloomberg U.S. Treasury STRIPS 20–30 Year Equal Par Bond Index. It holds 80 bonds with an average maturity of 24.6 years and an average duration of 24.1 years. The expense ratio comes in at 0.06% (read: Treasury ETFs Gaining on Slowdown Concerns, Rate Cut Bets).
Vanguard Extended Duration Treasury ETF has an AUM of $4 billion and sees a good volume of 641,000 shares per day, on average.
BondBloxx Bloomberg Twenty Year Target Duration US Treasury ETF (XTWY) – Up 6.3%
BondBloxx Bloomberg Twenty Year Target Duration US Treasury ETF provides exposure to U.S. Treasury securities that have an average duration of approximately 20 years. It follows the Bloomberg US Treasury Twenty Year Duration Index and holds 48 bonds in its basket. Average maturity comes in at 26.58 years.
BondBloxx Bloomberg Twenty Year Target Duration US Treasury ETF has accumulated $51.1 million in its asset base. It trades in an average daily volume of 16,000 shares and charges 13 bps in annual fees.
iShares 20+ Year Treasury Bond ETF (TLT) – Up 5.2%
iShares 20+ Year Treasury Bond ETF provides exposure to long-term Treasury bonds by tracking the ICE U.S. Treasury 20+ Years Bond Index. It holds 45 securities in its basket and charges 15 bps in annual fees. iShares 20+ Year Treasury Bond ETF has an average maturity of 25.35 years and an effective duration of 16.61 years.
TLT is one of the most popular and liquid ETFs in the bond space, with AUM of $62 billion and an average daily volume of 35 million shares.
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iShares 20+ Year Treasury Bond ETF (TLT): ETF Research Reports
PIMCO 25+ Year Zero Coupon U.S. Treasury Index ETF (ZROZ): ETF Research Reports
Vanguard Extended Duration Treasury ETF (EDV): ETF Research Reports
iShares 25+ Year Treasury STRIPS Bond ETF (GOVZ): ETF Research Reports
BondBloxx Bloomberg Twenty Year Target Duration US Treasry ETF (XTWY): ETF Research Reports
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