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ETF Of The Week: Big Bets On Long Treasuries

Lara Crigger

Someone is betting big on long-dated Treasury ETFs.

Over the past week, there have been massive inflows into the iShares 20+ Year Treasury Bond ETF (TLT), which tracks U.S. government debt with maturities of 20 years or more.

As of Thursday, April 25, investors had poured $2.1 billion in new net money into TLT in a single week, bringing the fund's total assets under management to $12.6 billion.

Year-to-date, TLT has had the third highest inflows of all ETFs, attracting more than $4 billion since Jan. 1:

 


Source: ETF.com; data range 1/1/2019 to 4/25/2019

 

Large, Liquid, Long Term

TLT is by far the largest and most liquid long-term fixed income ETF, trading close to $1 billion in average volume daily ($968 million) at pennywide spreads.

It's no secret why. TLT is the oldest such fund, giving it huge first-mover advantage in the space. Even though TLT costs 0.15%, it's still far more popular than cheaper, better-performing rivals, such as the Vanguard Extended Duration Treasury ETF (EDV), which costs 0.07% and has risen 2.64% year-to-date. (TLT, meanwhile, has risen 2.37%.)

 


Source: StockCharts.com; data as of 4/25/2019

 

Furthermore, with a duration of 17.56, TLT is highly sensitive to changes in interest rates, making it an excellent vehicle with which to express viewpoints on Fed rate hikes. (Duration is a measure of how sensitive a bond or bond portfolio is to changes in interest rates; the higher a duration, the more the bond's value can be expected to decline given rises in rates.)

Traders & Institutions Like TLT

So why has TLT suddenly attracted so much cash? We can't know for sure, of course, since trades are anonymous. However, prevailing sentiment around the Fed's future moves has started to shift; some analysts are even predicting a rate cut by the end of the year, after two years of rate hikes.

If so, TLT, with its high duration, will surely benefit.

But demand for TLT comes not just from traders looking to use TLT as a proxy for interest rate movements, but also from pensions, insurance companies and other large institutions seeking ways to match their long-term liabilities.

In that, TLT also offers some benefit: Its portfolio has a weighted average maturity of 25.85 years.

Contact Lara Crigger at lcrigger@etf.com

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