GOVZ
iShares 25+ Year Treasury STRIPS Bond ETF
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Merrill Edge hasn’t credited cash-in-lieu after ETF reverse split (over a month later). What can I do?
Need feedback about my strategy to invest in GOVZ/ZROZ?
Need feedback about my strategy to invest in GOVZ/ZROZ?
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How are you doing 2x leverage on GOVZ and KMLM?
Ruined. Everything was lost! They had put their money into individual stocks... Huge international corporations... that went bankrupt. They lost everything. You know, it's not like 100% of investors here only put their money into indices lol As an example for the 20s... imagine the people who put all their money into MSTY or other max yield ETFs... They're dead now... or the 25+ Year Treasury... [https://finviz.com/quote.ashx?t=GOVZ&ty=c&p=w&b=1](https://finviz.com/quote.ashx?t=GOVZ&ty=c&p=w&b=1) Here, or in the investing group... what makes me laugh is that there seem to be only people who went all in on SPY, putting their houses, cars, savings into it... and they all made +400% lol
What a great day for me, overweight small cap value, regional banks, biotech, with buying AI stocks on dips, new all time highs. I would start trimming...but things are just so bullish. I will add some more extended duration bonds using futures as leverage. GOVZ is at extreme lows, but holding with higher lows. If some term premium falls, easily go up 50%. Meanwhile, low short term FED rates mean low leverage cost of futures
Because corporate bonds are more correlated with stocks themselves, so why not just tonight the stocks for better returns. Use TLT or GOVZ for recession insurance since they tend to be negatively correlated with stocks (not always but mostly)
Take on some leverage and hedge the drawdowns using alternate diversifiers. UPRO, GDE, RSST, GOVZ, plus something international.
Any number of relatively unforeseen “calamities” could happen to give the stock market[s] a knock out punch (aka it all gets blown to bits sooner or later), .. but that’s why at least some investment grade bonds are recommended (maybe a smidge of gold .. hiding under the ice cream in the freezer). There’s plenty of backtested portfolios showing great CAGRs for 20-30% bonds over the very long haul (one on testfolio from 1-1969 to 1-2025 with 70% VT/30% GOVZ having the highest CAGR at over 10% in that hypothetical VT vs GOVZ mix; if retiring add some intermediate and short bonds to that mix for a 60/40-ish). Think the specific risk is being addressed at some level, though the govt are probably more worried about priority economic systems (semi-conductors needed for the military are already made in the U.S. under various laws like the Barry amendment). At worse Americans and other westerners may have keep their gizmos for a few years longer. Already at “peak television” as the screen is so good as to make out actor’s/interviewee’s skin issues or make it apparent there’s a stage for movies into the ‘90s.
Zero-coupon bond funds/ETFs get hit worse when rates rise as there’s no real interest payment to cushion the blow. The interest rate and price relationship for bonds is known as rising rates mean a new investor can buy a new bond yielding more, so for bond funds that impacts the NAV. However for regular bond funds, investors are also getting a higher rate for income or wanting to reinvest to use the bond fund as a basic hedge against an inevitable recessionary stock market crash .. i.e. the plan is to be able to cash in those bond shares at a profit anyways. With zero coupon etfs like EDV, the latter relationship is on steroids as there’s actual reinvestment via “phantom interest”. So since the ‘90s I’ve held some zero-coupon ETFs (now iShares GOVZ) in a tax deferred account accumulating shares as “insurance” against a recession .. and have used them before (2008).
For medium volatility: SHCG, VTI, QQQM For high volatility (and higher reward): QLD, GOVZ, BTAL rebalanced every 1-3 months.
Not quite, the bond ETF is essentially DCA'ing the yield curve. Old bonda roll off as they mature and new bonda at current rates get added on. The net duration exposure can be measured by the "effective duration", this is important because you can buy 20+ yr bonds that have coupons in a fund like TLT, but your effective duration is like 16 years because money gradually gets paid out to the investor. On the flipside, if you bought a fund that buys 20-30yr STRIPS (zero coupon bonds), you get the full duration exposure of the bond maturity, like GOVZ/ZROZ have an effective duration of 27ish yrs, averaging out their 30 yr strips and 20yr and everything inbetween. The ETF closest to what youre looking for is IEF, at 7.05 yrs effective duration. However, as new yields drop, youll be buying new lower yield bonds in IEF, but the existing bonds on IEFs balance sheet will increase in value since they have higher yields. Its all a gradual meshing of old fund contents and new fund contents, thus the "DCA" analogy. Old bonda roll off, new bonda roll in.
Its really hard to say, because inflationary risk is the bond killer (thus the 2022 bond bear market). As rates got lower and lower through the 2010s and then post pandemic, wallstreet was desperate for higher yield fixed income products and loaded up on US government debt at longer maturities to beat the risk free rate. Lo and behold, fiscal policy from covid stimulus where we literally dropped money from helicopters into peoples laps plus supply shocks from the lockdown led to inflation, thus monetary policy tightened. Now, long bonds yielding much lower than the risk free rate had to be severely discounted since you could get a risk free 5.25-5.5% at peak rates in 2024. Without trumps tarrifs, bonds would be looking alot happier right now. The big beautiful bill is a huge looming risk to bonds, as inflation from bad fiscal policy would tarnish the trust in US debt, raising rates and lowering par value of bonds. If inflation doesnt come back, you get a really good deal with these rates. If debt hawks in the senate mediate the deficit, bonds look better. Its hard to say of stuff like TLT or GOVZ or ZROZ or EDV will be good in the near or mid or long term, but there is this spectre of recently being burned on long duration debt thats made walk street and the world less likely to hold super long bonds. That means lower demand and higher yields, but should that faith slowly come back, then there will be upward pressure on bond prices and yields would lower.
You are correct that bond etfs are unlike straight bonds. Bond etfs effectively DCA the yield of whatever duration or segment theyre targeting. If yields are 5% right now on GOVZ, theyre buying bonds at 5%. If theyre 4% tomorrow, theyre buying 4%. Theyre continually rolling off old bonds and buying new ones at the new rates. However: Youre not making the connection between the changing risk free rate and the changing bond return premium. Post GFC we were in a super low risk free rate environment. From 2010 to 2017, the effective federal funds rate was zero and the 12-month CAGR on BND oscillated between 0 and 5% per. You cant look at the total CAGR start to finish of BND and compare that to todays fed funds rate. Bonds have had a huge drawdown due to rising rates, so any simple compound interest calculation is silly. Back in 1990-1995, BND (or VBMFX, older total bond market fund) was pushing 10-15% CAGR while the fed funds rate was cut from 10% down to 3%, and was then followed by a bond bear slump where CAGR went negative in 1995 as the fed raised rates. Personally, I dont buy the total bond market. I dont like how low duration risk it is, and I dont need the corporate bond exposure. But im just sharing how you should be evaluation these instruments. Bonds with duration have exposure to risk, and when the Fed does something ridiculous like hike 5% in a year for the fed funds rate, you get bonds losing value because newly issued bonds are at much more attractive yields. You have to discount existing bonds to match that yield. Going forward, all the bonds in the fund are priced at higher yields, so if new yields go down, the price of bond funds rise, like today. I just bought several thousand of long long duration debt via GOVZ yesterday (5x the volatility of BND, 26 yr duration vs 6 yr) and its up over 2% today because interest rates moved down a little bit.
If you aren't in ZROZ, GOVZ, or TMF you've got no balls.
Etfs, yes. TLT, EDV, GOVZ, ZROZ. Risk? ZROZ since 1962 has a volatility of 24% vs SPY with 16%. Long duration debt is super volatile and super sensitive to macro conditions. Max drawdown of -80% (before inflation) after the 70s great inflation, -60% drawdown from pandemic supply shock inflation.
They use LEAPs on like 7 year bonds, so the theta decay is almost negligible. You get the better yield at the middle of the yield curve, and it's long volatility. The design of it gives great convexity, and you get longer duration (more capital efficient) exposure than say EDV/ZROZ/GOVZ without sufferjng from volatility decay like with TMF or TYD.
Do I sell my GOVZ holdings for GLD?
It is not as simple as -1x VIX, that is *not* what SVIX is. It follows the shortvol -1x futures index, and as such its less sensitive to day to day changes compared to other inverse vol funds. SHORTVOL differs from the SPVXSP/SPVXSTR indexes used by the other short-term volatility Exchange Traded Products in that it uses a time-weighted average of the underlying VIX futures’ last price and their Trade-At-Settlement (TAS) order spread, taken every 5 seconds in the last 15 minutes before closing, to calculate its end-of-day closing value. Think of it like a bond index like GOVZ. They essentially DCA long duration bonds, so as rates rise, its existing bonds lose value, but as bonds roll off, theyre buying new bonds at the current rates. As futures roll off, they buy up new ones, so you essentially DCA that difference between near term and very short term VIX futures which SVIX tries to keep in contango (good for SVIX gains) 80% of the time at least. The term structure of VIX futures is contango about 80% of the time, with prices increasing with additional time to expiration. Unless there is a significant turmoil in the market the futures usually decay significantly in value over time when they are in this configuration. Since SVIX is short VIX futures, it’s positioned to benefit from that decay.
Absolutely, this is 100% the best way to use LETFs in my opinion. My long term buy and hold (with quarterly rebalancing) portfolio in my IRA is ~1.6x leveraged, using UPRO to get me more exposure to US beta, and the space that opens up in my portfolio lets me buy long term treasury bonds, international equities, and managed futures funds. I love the concept of NTSX/I/E and RSSB, my only gripe is their target duration on their bond futures. They mostly hit durations similar to IEF (~7yr effective duration). I want longer duration, so I do it myself with UPRO, small cap value funds, managed futures funds (CTA, KMLM, etc), and then I use GOVZ and ZROZ (effectively the same thing, ~26yr effective duration STRIPS) for my long term treasury bonds. Rebalance agnostically, ride into the future, hope for the best. That diversification (to managed futures, bonds, and international) has really helped during this 2025 so far.
GOVZ! Long term treasury bonds carry a low or negative correlation to global equities, but still have positive expected returns. They spike in value during recessions, cushioning drawdowns. https://testfol.io/?s=5VeHLZa4eTn Take a look! This is not just backtest copium, this is a well known solid theory move to do in investing. Bonds are less correlated to stocks. Treasury bonds are even less correlated than corporate bonds to stocks. Longer duration bonds carry ggreater rate risk. During recessions, real investment opportunities in the real economy dry up, so existing capital floods to longer duration fixed income like treasury bonds, ttus they spike in value and future yields drop.
The amount you are investing has nothing to do with what your investing strategy should be… that depends entirely on your goal. If your goal is “long term growth” I would consider a globally diversified portfolio with a factor tilt for greater compensated risk. I would also consider adding some long bond exposure with EDV, ZROZ, or GOVZ which can decrease risk while increasing your risk adjusted returns and possibly your real returns too. Always avoid individual stocks unless you love idiosyncratic risk for some reason.
Dividends are just one facet of companies enriching the shareholders. Theres also investment in book assets. Theres share buybacks. Anyone purely focused on dividends is simply a worse investor. Theyre taking the market, excluding a large swath of opportunities by not looking at companies that dont pay a dividend(a lot of information tech, GOATs like Berkshire hathaway which does share buybacks instead of dividends, etc), and thus reducing your future expected returns and increasing risk. Double whammy of sucking at the mission. Buy an index fund. SCHB or something like it. If youre hip to it, slap 20% of international on there. SCHF or something like it. If you want to derisk, add government bonds like IEF or TLT or GOVZ, those are in order of increasing duration. Longer duration commands far more rate risk, so the longer duration, the more volatile. You expect longer duration to more powerfully hedge recessions likee the GFC, while shorter durations provide better risk adjusted returns due to lower volatility.
Browne was a good read, but while a financial guy, also a political candidate. So he wrote it right the US allowed gold to be traded freely and other inflationary shocks (Arab oil embargo). However this is when the first S&P500 index fund came out and he said to stay with assets fully invested (so a stock fund should also be near 100% as the active funds at the time could play around). Some of the companies have been absorbed when it comes to “zero-coupon” treasury funds, though one can substitute EDV or GOVZ ETFs. Some have gone on to update Browne’s “permanent portfolio” (which did well in the ‘87 crash but then didn’t do so great since) after the rest of the ‘80s, ‘90s, ’00s ‘10s to be a little more equity rich if wanting growth.
Yields dropped all along the yield curve due to supply of bonds not going up. More supple = lower price = higher yield. There was an expectation that the treasury would be issuing more bonds, but this has been ameliorated. My long duration bond funds (GOVZ and ZROZ) are up 2.7% today as a result.
Big fan of this recommendation, but in a tax advantaged account I think VT + EDV or ZROZ or GOVZ at 90/10 may even be better for the younger crowd. Those options will give you a longer average duration than VGLT. This means they are more volatile and you can hold less % to bonds for roughly the same effective exposure.
The method of levering and the hedges for the return driver is important. You should be holding a ballast of longer duration treasury bonds along side a leveraged equity position. Much lower max drawdown, cuts the volatility. Thanks to the leverage, you can still have >100% equity exposure while having the uncorrelated hedge, such as GOVZ.
VOO/AVUV/GOVZ 70/20/10, rebalance annually
90/10 FXAIX/GOVZ. Rebalance to maintain 90/10 once a year. Outperformed the market the last six decades by a few basis points while having a proportionally 20% small drawdown and lower volatility.
100% is maximally aggressive. Anything other than VT is a tilt, which unless its to the risk premia (small caps, profitability, value, investment) is an uncompensated risk. If you truly want more aggression, you have to find a cheap way to add leverage to your portfolio. Easiest way for cheapest retail leverage is using an LETF since they get institutional borrowing rates at the Libor + counterparty spread rate. For example, take a diverisfied portfolio, stocks and bonds, lever it up. Maybe shift the bonds to long duration like GOVZ, add US beta exposure with SSO (2x spy) or UPRO (3x SPY) and rebalance regularly, at least yearly, but far better quarterly or shorter. This is to minimize the LETF from growing too large in a bull market, causing it to overweight in your portfolio, which substantially exposes you to a co-occurence of large UPRO in your portfolio with a black swan. A bad red week and Upro can drop a *lot*
Yeah, a 10-20% allocation to long duration bonds (GOVZ or ZROZ is best IMO) along with equities beats slightly on CAGR (only single digit basis point outperformance in CAGR) but has lower max drawdowns. You dont participate as heavily in the bull runs, and you dont participate as heavily in the drawdowns, and in the end you come out on top with a better total and risk adjusted return. Yes, this includes the 1970s and 2022.
Extended Duration Treasuries like EDV, ZROZ, GOVZ. Longer duration to match MY duration... but also due to the (typically) negative correlation to equities.
Looks great boss. If you went 72/18/10 VTI/VXUS/GOVZ you would historically improve your historical CAGR from 1969 from 10.52% to 10.79% and reduces your max drawdown from -56.3% to -47.7%. its a free lunch. All you have to do is rebalance yearly to maintain the target allocation.
GOVZ at ~20% in my normal portfolio. Rebalanced regularly (quarterly/annually) with an equity index portfolio has historically produced roughly the same compound annual growth rate with smaller drawdowns due to the negative correlation during recessions. You sell high on long Ts and buy low on stocks, aka rebalancing alpha. This is even including bond bear markets like the 1970s and 2022, and you still meet or beat the market by a teeny bit.
I am painfully aware. Thats why I started buying long treasury bonds, to hedge market crashes. For example, a portfolio holding 80% SPY and 20% ZROZ or GOVZ (25+ yr zero coupon long treasury bonds) only had a drawdown of -32% during the GFC, while 100% SPY dropped -55%. And to boot, this portfolio had a slightly higher total CAGR than just SPY. As such, its risk adjusted return is far better. Going higher on treasury bonds drops the CAGR but improves the risk adjusted performance and reduces the drawdowns. Smart portfolio construction does not involve cash.
Portfolio 2, remove BND, replace with something like EDV, GOVZ, ZROZ, something like that (long treasury bond). Historically for the last 6 decades of data, holding a sliver of the portfolio in long treasury bonds (and rebalancing annually) beats the market on all bases. Better total return, risk adjusted, lower vol, lower max drawdown. 10-30% inclusion. If youre like me and dont want to be less than 100% equities, then simply subtract 10% from VTI and buy something like SSO or UPRO (leveraged S&P exposure). For example, 73/7/10/10 VTI/UPRO/VXUS/GOVZ gives you 104% equity exposure and 10% long treasury bond exposure. Many such combinations are possible here.
Youd want the best negative correlation if his fear is a crash, and thus would want a long term treasury ETF like EDV or GOVZ
Investing is certainly better than not investing at all given that you’re “investing” not “trading”. Long-duration treasury bond ETFs like EDV, GOVZ, and ZROZ are a great diversified to stocks. I hold EDV at 10% of my portfolio. It’s not necessarily that bonds will outperform stocks long-term but that your portfolio could outperform by holding them together both in risk-adjusted and real returns
It all has to do with asset correlation. International developed and especially emerging markets are less correlated to the U.S. market than holding within the U.S. In periods of U.S. underperformance we see outperformance in international stocks… just look at the 2000s for instance also known as the lost decade for U.S. stocks. Long duration treasuries and other bonds are valuable for their high negative correlation with stocks, and are likely the best recession protector. Unfortunately they are largely misunderstood in this sub and are rarely suggested. Some good options would be EDV, GOVZ, ZROZ. Personally I use EDV at 10% of my total portfolio.
Id hold bonds but not FXNAX. I dont want a bond index with all these short duration bonds or corporate bonds. All i want in my portfolio is an allocation to very long term treasury bonds, like EDV or GOVZ or ZROZ. Heres an example of 100% VTI vs 90/10 VTI/ZROZ. ZROZ IS ~25yr average duration treasury bonds. Rebalanced between stocks and bonds annually. https://testfol.io/?d=eJy1kOFLwzAQxf%2BVcCAoFtYJCus3RQRBUbYpOhnlbK41LkvmNd0oo%2F%2B71xbn5nfzKce7vPd72UJh%2FTvaR2RclpBsoQzIIdUYCBKACMjpvalX12ghGcZyIkD9mRqXWwzGO0hytCVFkGH5kVu%2FgST%2BHdKc6Ut8XgnZ1uLG3lrjinRjnG53L%2BImgpXnkHtrvOC8bcHhss2WtCP1NFGT4LOFukdeUBAH49ZUhmuzNlpA5UXgSuKZpBO6jG7%2BJAaTLYh75%2F4u6vP0djoWcUWckQtdtWYegWYspEAT7ShG8WAYtxjBB7QHMGqg7rwr1JQJy4prdeUFSB2fnZ%2BqmpWuuPuhEzX%2BYdPq0rkKbQf2P0VGHfxOn40fZi%2BHRfd7zptvDvavkg%3D%3D You slightly outperform the market and have a materially better risk adjusted return since your max drawdown and volatility is lower. Long treasury bonds spike when markets crash, so you sell high on bonds and buy low on stocks. Rebalancing alpha.
Total bond index funds contain too much corporate debt and short term debt. For a better diversifier that actually increases portfolio total and risk adjusted return, replace the bond index funds with a long treasury bond ETF like EDV or GOVZ
If it was post crash, id go full VOO. Since we're pretty high rn, id be comfortable lumping in 80/20 VOO/GOVZ, if your heart is set on VOO as your equity investment. If the market does dump, GOVZ is going to shoot up and help you buy the dip and get good gains. A small allocation to long treasury bonds has slightly beaten pure equities in total return and has beaten in risk adjusted returns as well in the USA for the past sixty years, mostly due to reducing max drawdown and getting that rebalancing alpha.
The most rigorous answer would be long term treasury bonds. They typically have a strong negative correlation to equities during turbulent times. When stocks zig, long bonds tend to zag. Going purely long treasury bonds is a far far better diversifier than corporate bonds or short term bonds, which is why I dont like BND for any portfolio. Even as small as a 10% allocation to a long dated treasury bond fund like GOVZ, EDV, or ZROZ slightly increases your long term CAGR in the backtests while while reducing max drawdown significantly when holding 90/10 stocks / logn treasuries rebalanced annually. The key is rebalancing, thats the main purpose to hold bonds in an accumulation stage, as when stocks run up, you rebalance into bonds (your insurance policy) and when stocks plummets and the bonds shoot up, you rebalance any buy the dip thanks to the bonds. https://testfol.io/?d=eJy1kEFLAzEQhf%2BKzDnQ7EVoziJ4EEVLsZWyjJvJNjVN2km6RZb9786ygot3c8rwvbz3Jj20IX1geEbGYwbTQy7IpbZYCAyAAop2Nk20wwCm0nIUoD3UPrqAxacIxmHIpKDBvHchXcHo36F2TGfx2RBy%2BBI3TiH42NZXH%2B2ovR0UnBIXl4JP0ua9h4jHMXqpF5W%2BWa8W25enrbz0saNc7nznrRQUaeGLxDLJLhgbuv%2BTVHzzSTxZTneh69Xrw6PAE3FDsYBZ6kHN%2BJj1NueVHnYKLGMre43Sn3aHSy5S7t96yVfPg3fDN0gZkc0%3D See? Thats a pretty good deal. Better returns, lower max drawdown, lower volatility.
Idk if you know something about Amazon that the market doesnt as to why you own it outright, but I personally dont have insider info so I wouldnt hold it individually. The rest of your IRA makes a lot of sense. Its basically the total world market plus an overweight to emerging markets small cap value. That does make it a bit riskier, but EM and especially EM value is a great diversifier. Its much less correlated to US equities than just VXUS. And the target date fund is find. Perspnally id liquidate that and buy more VTI/VXUS so that I wouldnt be inherently holding BND and BNDX (target date funds hold market cap bond indices). I dont like those bond funds due to the shorter duration to maturity and the corporate bond exposure. It would be better for diversification and crash insurance to hold a long dated government bond fund like EDV or GOVZ. Maybe a slice of 10% of the port for those long dated treasury bonds.
Look at bond funds since april, especially long treasury bonds. EDV. TLT. ZROZ. GOVZ. Youre half a year late to realizing that rate cuts are making bonds a more attractive investment (not to mention the *reason* for the rate cuts, which is economic slowdown driving up demand for flight to safety assets).
Short term bond trading based on what? There are two primary risk premia associated with bonds. Credit risk and term risk. Longer dated bonds carry more term risk (conditions changing over time may make a locked in bond appear worse. Inflation due to money printing eroded the value of long bonds and money flew into equities and short term debt (see: 2022, 1970s, many such cases). For example, look at TLT, EDV, GOVZ, ZROZ during those time frames. Theres also the credit risk premium. The riskier the debtor, the higher yield they must pay you. This is why US government debt is a low yield, theyre AAA never defaulted since the war of 1812. Buying a bond from Argentina carries more risk, so their yield will be priced at a higher credit risk (also inflation will increase the yield). Corporate bonds have higher yields than government bonds since governments have a monopoly on violence and have the ability to tax and print money, while companies do not. A single company is more likely to go under than a government, thus higher yields. But if youre trading bonds, that means youre trying to trade on price sensitivity? Bonds at their root are priced at a discount of some future value, paid in coupons and you get the principal back or held and accumulated to maturity like a CD. For you to make money swing trading bond actions, you would need to be able to know something that the 300 trillion dollar bond market doesnt already know, because whatever you can think of or read on the news has already been priced in. I would argue that the efficiency of the bond market is even higher than the equity market, so trying to outperform the bond market on a risk adjusted basis with bond trading will be... a titanic task. I use bonds for their diversification effect. Long treasuries, of all bonds, show some of the lowest correlation with the US stock market. Why do I want that? Im leveraged on large cap US stocks in part of my portfolio. If the market crashes even just 20%, in losing 60% in that. In that recession scenario, long treasuries will be negatively correlated and provide a rebalancing opportunity to sell high on treasury bonds and buy low on levered stocks. Managed futures (KMLM, DBMF) is the third leg of the stool and provides strong performance particularly in inflationary environments where long bonds would suffer even more than stocks would (2022). Based on history and the theory behind three uncorrelated/negatively correlated assets, I hope to outperform the index long term (not on a risk adjusted basis, no way) but with a similar max drawdown. A great place to learn about bonds is the rational reminder interview of Dave Plecha, global head of fixed income at dimensional fund advisors (the company that invested the first small cap value funds and beat the market over 30 years). https://rationalreminder.ca/podcast/163 Another good one is Ben Felix talking about bonds and credit spreads and all that fun stuff https://rationalreminder.ca/podcast/138
The clear two answers are bonds and gold. Gold has a real expected return of ~0% long term (just matches inflation, but poorly since its volatile), or you could use TIPS. However, the volatility of gold can be helpful. Gold is uncorrelated to both stocks and bonds, and uncorrelated assets in portfolios allow you to rebalance when one of the assets underperforms and you can seize the mean-reversions (observed in markets, gold, bonds, but not in individual stocks or stuff like shitcoins). Its well known to be a more stable ride if you diversify to Equity Index funds + gold ETF + bonds (whether you use a diverse bond fund, or you could go long on the treasury curve since 20+ yr treasuries are negatively correlated to stocks, so when markets crash your long treasury bonds spike up in value since they are "flight to safety assets", funds like EDV or GOVZ or ZROZ are great for this). Stocks drive your expected returns. Long treasuries are an insurance policy for recessions, when investments in the real economy look bad so banks and institutions load up on long treasury bonds to lock in stable coupon yields with their balance sheet capacity. Gold is a third diversifier with a multi-millenia track record of retaining its value but not providing any real return in excess of inflation. Cam Harvey os a great resource on the utility of gold, and frankly its use in short term portfolios (less than 100 years, yeah i know thats funny to say, but trust me/Harvey) is dubious. Gold is truly robust in a statistical analysis of centennial estates, but its sequence risk and volatility means its a bad inflation hedge in the short term, but what matters under Markowitz modern portfolio theory is its relation to other assets in the portfolio, which is why gold is good if you want to reduce max drawdown and volatility in a portfolio if youre willing to give up long term expected returns.
By itself? No. Hedged by a negatively correlated asset with large price action (like very long date treasury bonds such as GOVZ, EDV, ZROZ, or levered TLT aka TMF), sure I use lvered equities.
Mostly EDV or GOVZ ETFs in a tax-deferred account as when a bond fund is needed for counterbalance.. an investor tends to needs a very strong one. Maybe some others to diversify a little if the yields diverge significantly (corporates, high yield, .. global) but if the yield is pretty much the same, why take [unnecessary] risk? When it’s time to retire, retire? Maybe add bonds themselves with a little stock ETF tied to withdrawal, even gold EFTs. Cash out within 2 years of use for “wants”. Use my inflation-indexed pension for “musts”.
I use TMF and GOVZ. They hedge a leveraged S&P allocation. Clearly, rate cuts combined with cooling jobs field and some tingle of recession fears has led people to come back to long dated treasury bonds, since TMF is up like 35% since I bought it in april.
Bond value (for the most part with some exceptions) is inverse to interest rates. Rates go up and they go down. Rates how down and they go up. Also depending on which you have they can go up or down more or less than others during interest rate changes. Right now I have GOVZ in my personal and a couple of the more long term weighted in my 401k since it has less options and GOVZ isn’t one of ones they allow.
Depends on what kind of fixed income. For example, long dated treasures (EDV, GOVZ) typically go up alot when recession fears rise (balance sheet capacity locks in long dated yields when investments in the real economy look bad by comparison). If market crashes, but your long T's shoot up, then you get to rebalance out of the treasuries and buy the bottom in the market. Essentially it just reduces portolio max drawdown since long government bonds are negatively correlated
What youre kissing is that everyone has priced this in. For example, i bought a bunch of TMF (3x levered TLT, 20+ yr treasury bonds) in april which is now up 30% *because people have already been pricing in that rate cuts are coming*. Everyone knows that a rate cut in september is guaranteed, with odds rn of a 50/50 chance of two rate cuts. That means that if two rate cuts happen, TLT will see a spike up, and if only one rate cut happens, TLT may see blunted upward movement or even downward movement, depending on how much weight was given to the potential for two cuts. Id caution against opening a position in TLT, EDV, GOVZ (all great long duration tbill funds) if youre seeking higher total returns. Total equity approaches are better for that. I hold TMF as a hedge for equity downside, because the drawdowns on leveraged S&P funds can be backbreaking without a hedge like TMF. Just be aware that its not as simple as "rate cuts = TLT goes up". Its not like a light switch that will flip once the Fed cuts the short end of the curve. The long end of the curve is priced based on short end cost benefit analysis, long term US growth expectations, inflation expectations, rate differentials globally, recession fears, and all these drive the yields up and down and inversely drive the price up and down.
Zero-coupon bonds are the WSB plays of CPI. GOVZ, ZROZ
Thank you for the advice, but $GOVZ options liquidity is nonexistent.
If you want even more duration exposure, try GOVZ. Some of my lowest priced shares are now up +20%, overall position +13%. I think a slowing economy will cause an extended rate pause and then cuts by the Fed so more room to rise.
I recently bought a lot of TLT and GOVZ (even longer maturities) because I think we are at or near top rates. There is still a lot of risk though. If the long end of the curve goes up more (which would be wholly unsurprising despite my bet to the contrary), long dated bonds will continue to drill into the earth's core. In particular, I'm concerned that the huge amounts being borrowed might create a genuine repayment risk fear which will juice LT rates. Similarly, rates might need to rise to continue to attract enough lenders to meet the huge demand for financing.
BND and AGG are not great for interest rate plays. They hold mortgage-backed securities, which don’t rise in price as much as other bonds because when rates fall, people have a chance to refinance and will pay off their mortgage. Bonds that can’t be paid off early are better, so Treasuries with long duration are great. The longest duration you can find are funds with long-term STRIPS: EDV, ZROZ, and GOVZ.
I'm such a degenerate I've also bought GOVZ, which has a duration of >26 years.
thanks, will check them out, the long bond route for last 3 years straight is a statistically unlikely thing to have happened and many people I know in business can't conduct/expand/close anything at 8.5-9% loan rates, this should ramify through America over next 12 months and trigger soft recession at least which will then nullify inflation and cause long bond rates to fall, and EDV/GOVZ/ZROZ to pop , but am prepared for further 25-30% downside if needed and will then double down for eventual reversion to mean
Oh I really like GOVZ. Thanks for mentioning.
Yes, EDV has one of the longest durations available in an ETF. GOVZ and ZROZ are even slightly longer.
I've bought a little bit across the yield curve--SHY (no real risk here), GOVT, TLT, and GOVZ. I'm convinced this will play out well, but I'm not sure the we have hit bottom yet, so I'm slowly buying for now.
It depends on the spectrum of future probabilities you assign to long term bond yields and invest accordingly. > Interest rates go down - The ETF will make major gains and I can exit it in the future If you think long term yields can eventually get to Aug 2019 levels then GOVZ can go up by over 80%. > Interest rate stay the same - ETF will still make slow up moves because of the coupon it receive from underlying This is likely the base case for at least the next year, so you could be early if you buy now. I would suggest DCA when long term yields approach 4%. > Interest rate increases - Let's say they increase from 3% to 5%. The ETF will go down. It's a scenario where I lose but interest rates are most likely to down in 5 year period. So chance of this are very low. Well, long term yields are already at 3.9%, so bond values have already fallen quite a bit. If long term yields rise to 5%, then GOVZ would likely fall 25%. My personal opinion on the macro is that 1) long term inflation expectations are anchored at less than 2.5%, so long yields shouldn't go above 4.5% unless inflation becomes sticky at over 4%. 2) The path of inflation is likely to fall below 3% as rents are falling. 3) Post-pandemic demand boom and Ukraine War has given you an opportunity to lock in long yields at over 4%. 4) Low long term inflation trend in developed world is still intact as demographics and normalized economic growth should still be capped around 3% or less. 5) yield curve inversion has already priced some of this in as lower inflation is expected. So I give chance of long yields going to 5% near term as extremely unlikely, 5% chance, getting to 4.5%, 15% chance, 4% to 4.2% over the next year, 40% chance, 3.5% to 4% the next year, 40% chance, less than 3.5% in 2 years, 70% chance, in 5 years, 90% chance. I am personally buying dips when long yields go above 4%, and also looking at short term yields (<2 yr) above 5%.
I like it *right now*, not 6-12 months ago. The difference being the Fed was saying they would raise the FFR, and following through. Now, we’re likely near peak rates, the covered call strategy should make up for another 50bps raise and outperform other bond funds if rates hold steady. Once I get a sense that market is stagnating and rates need to drop, I’ll reallocate more aggressively to long term zero coupon Tbond funds like GOVZ/EDV/ZROZ.
Dedollarization is being handled pretty well. The yield curve is inverted, but this makes sense as the relative value will (and should) continue to decline. The dollar will not collapse, and the political nature of exchange rates is too complex for this post. Personally, I have significant funds allocated to $GOVZ, if you need a long-term bond ETF. When the yield curve returns to normal, it should do quite well.
The new allocation plan is BRK.B only for equities and GOVZ/ZROZ/EDV for the long term treasury bond allocation, and keep about $2k or so in a treasury-only money market such as FDLXX for occasional spending on medical expenses. I would plan to pretty much never sell the BRK.B except if a tax loss harvesting opportunity presents itself. Since HSAs are not taxed at the federal level, and treasury bonds are state tax exempt, I won’t have to worry about “phantom interest” or ETF dividend income from the bonds. But if the bond funds rise significantly in value due to declining prevailing interest rates, I would sell to buy more BRK.B and rebalance the allocations. Capital gains on treasury bonds are taxed by California as ordinary income, so harvesting losses on the bond fund is a good idea, I can rotate between the three funds every so often whenever they’re showing a loss.
Two pieces of investing wisdom: 1) Time in the market beats timing the market. 2) Your savings rate over the long run is going to matter far more than what market conditions were like when you first started investing. Buy VTI and VXUS. Maybe some long term treasuries, TLT or VGLT or GOVZ, depending on your age (if you're under 40, probably don't bother, if you're under 30, definitely don't bother). Stick with it for a while. Learn about factor investing once you've held onto those for a few years and decide if you think the theory behind it is good. Obsessing over buying the dip or whether something is overvalued or if you've "missed out" is going to cost you far more money in the long run.
If we look at the late 1970s the last time the yield curve was inverted, was there a crash? Why would the macroeconomic picture be substantially different today? I don't completely disagree - I'm 30% in $GOVZ.
Not exactly, since retirement is not the age at which you suddenly spend your entire nest egg. You should still be investing with a goal of some growth when you retire. Relatively low-risk funds like BND certainly could be in the portfolio of a retiree. But long-duration, high-quality bonds are a good complement to stocks. The most extreme version of this among the funds you mentioned is EDV. Two funds are similar but have slightly longer duration: ZROZ and GOVZ.
Arguably the best bond fund to complement stocks is one with minimum credit risk and maximum duration. To the extent that stocks and bonds move in opposite directions, long bonds will be the best at compensating for falling stocks by greatly rising in value. Any bonds that have credit risk (like corporate bonds) will be more correlated to stocks, which is why US Treasuries are such great diversifiers. The three ETFs that meet these criteria best are EDV, ZROZ, and GOVZ. These funds hold US Treasury bonds called STRIPS. They're zero-coupon bonds that have their entire payout at maturity. Due to this feature, they have the longest duration of any bond fund. EDV from Vanguard has the lowest expense ratio, but ZROZ and GOVZ have slightly longer duration, so their expected return is even better despite a slightly higher expense ratio. Some replies have said that short-term bonds are best, but short-term bonds are poor tools for counteracting negative returns for stocks during a crash, which is exactly when you want bonds most.
Also there’s a new long term zero fund GOVZ in the IShares family fwiw.
Despite being composed entirely of strips, ZROZ will pay out monthly or quarterly interest payments in line with the phantom interest that the IRS will tax. Since the ETF isn't receiving any interest from the bonds, they fund this by selling some of the bonds. This is also true for EDV and GOVZ.
Those with the longest duration, which is the relevant variable, are EDV and (slightly longer) ZROZ and GOVZ.
There are two broad dimensions of bond risk: duration and credit. If you want exposure to duration risk, TMV/TMF or options on TLT is how to maximize it. For a long-term hold in most portfolios, I would buy EDV/ZROZ/GOVZ. If you want exposure to credit risk, options on HYG work well, but the stock market is also highly correlated with junk bonds. TLT options provide pure access to duration risk, without any concern that the bond issuer might default. So yes, it doesn’t provide broad exposure to all types of bonds like BND. But my question would be, what kind of conviction would lead one to want that exposure?
One can pay less expense ratio than NTSX by investing in a simpler portfolio with stocks and US Treasuries that have much greater duration. VTI/VOO for stocks and a fund like EDV/GOVZ/ZROZ for US Treasury bonds with extremely high interest rate risk. This is not my recommendation, but leveraging intermediate bonds with futures is kinda silly when you could just invest in riskier bonds and achieve exposure that is similar enough.
JEPI is not a fixed income strategy, it is part of a HY equity portfolio which may or may not make sense depending on the rest of your portfolio composition. Depending on your age horizon, if you're greater than 20 years from retirement, you should really be looking at duration matching your portfolio in the bonds department. That would include: VGLT, EDV, ZROZ, GOVZ funds up to 20% of your portfolio for fixed income. VBTLX could then make up the rest of that portion, again, depending on retirement horizon.