ZROZ
PIMCO 25+ Year Zero Coupon U.S. Treasury Index Exchange-Traded Fund
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Why long-duration, low-coupon treasury bonds are about to return 25%
Considering Long Duration Bonds as an Opportunity
Should I start buying treasury ETF now?
Need feedback about my strategy to invest in GOVZ/ZROZ?
Need feedback about my strategy to invest in GOVZ/ZROZ?
Buying LEAP on $TLT - An "obvious good idea" at this point??
Anyone loading up on long bonds in anticipation of recession and rate cuts?
Thinking about the 25+ Year Zero Coupon Treasury Index Exchange-Traded Fund (ZROZ)
Best Treasury bond ETF to buy right before the Fed slashes rates from 4.5% to 0%? Why isn't TLT performance inverted vs SHY this year?
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this is the right play, you just have to get the timing right. also ZROZ is the even greater potential gainer.... you just really have to know this market. holding TBIL right now which doesn't move as much, but pays nice. also holding SPHY, i was afraid when it hit $22 but it's at $23.5 now (this is a big move for a bond etf.... and you can pile cash into it)
I think you’d really benefit from checking out Mark Meldrum on YouTube. That’s his bread and butter, he’s a CFA prep provider and one of the best investing resources I’ve found (not a guru lol.) he does weekly market outlooks where he goes over economic data from the prior week as well. Personally I see more value in high duration bonds, for fixed income assets. But it’s starting to look like the market has WAY overpriced fed rate cuts so I closed my ZROZ position a while ago. Check out Marks YouTube channel, hope this helps.
ZROZ, a zero coupon bond etf. when interest rates go down and stocks get trashed, ZROZ will moon
Yes, but you should have a good understanding of bond values. I would go with ZROZ, even longer duration and less coupon yield so lower taxes. Bond yields follow Taylor Rule, and long run GDP growth is a major factor. The key point is that long run GDP growth across every economy will become lower and lower due to diminishing marginal returns, leading to secular declines in bond yields, that is what has been happening for 4 decades until the pandemic. The best way to take advantage of this is by buying extremely long duration bonds when yields are abnormally high. If we return to bond yields from pre-pandemic levels, ZROZ can return 100% in 5 years. The risk is structurally higher inflation but I don't see this happening in the US for reasons like energy independence, technological efficiency, and lack of inertial inflation from union contracts. Ultra long duration bonds are also really volatile and should be sold during recessions as pandemic yields like a 1.3% 30-year was basically a bubble. There is no situation where such a low bond yield can be justified in a normal growing economy.
the 20 year bond chart appears to be pricing in a rate hike (https://finance.yahoo.com/chart/TLT) i'm in TLT, TBIL, ZROZ and SPHY to keep it spicy. i've held corp/muni bonds in the past but have never seen bond action like this before. i would not be surprised if the fed held rates for the rest of the year and did a hike in the near term, instead of any drops.
In my trading account right now Comcast, ZROZ, CRM, INTC
I think it's a great risk reward bet. I wish I had bought those contracts in October, thought. But I did load up then on ZROZ and TLT shares, too. I looked at higher strikes but I don't see a good risk reward above say a $105 strike. And the $100 contract is a lot more liquid.
I do have TLT shares also and ZROZ. I've been long on those for months. I loaded up more on October 19 bottom. But I do think TLT will probably hit 109-110 sometime in Q1. At that point I'll probably take profit on the calls and re-evaluate.
You're kinda late to the game on this idea, so the risks are higher. I've been riding EDV, TLT, and ZROZ to double-digit gains since November, but now the 30 year rate is almost down to 4%. Un-inversion always happens on the short-term side, due to the Fed cutting rates. So what are the odds of short-term rates getting below 4% (usually short-term rates are 1-2% lower than 30y rates, so make that below 3%). That's not going to happen in a "soft landing" scenario but it might happen in a recession. I will start liquidating my bond positions as the 30y goes below 4% and down to 3.75%. Understand that these instruments are incredibly volatile - often more so than stocks - and the downside if rates swing back upward as they unpredictably do is huge. With the VIX<13 I'm more interested in long options plays on stock indices right now.
You should anticipate upcoming rate cuts by quickly moving your money into long-duration bond funds like ZROZ or EDV. Falling rates would cause the reverse of 2023 to happen, which means double-digit gains.
Y'all better strap in for a wild ride with them long-ass treasury bonds - we're talking double-digit gains when them interest rates drop, so say goodbye to your boring ass TSLA and hello to some real action with [ZROZ](https://marketchameleon.com/Overview/ZROZ/?lu=true&pap_aid=stormofnegativity&pap_cid=11111111).
EDV works too as a replacement for ZROZ. I've even seen EDV suggested as an alternative for TLT or TMF in the HFEA strategy. I think it's a great time to get into both leveraged equities and bonds. Bonds because they're so beaten down, and equities because just won't stop going up. And if they finally do, I'm fine to accumulate.
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.
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
Yes, EDV has one of the longest durations available in an ETF. GOVZ and ZROZ are even slightly longer.
Holders of ZROZ and zero coupon bonds should be seeing some nice positive gains in the future, nobody knows when that will be and it may not be worth it for most people to invest due to opportunity cost. Most people would be better off in equities.
Sounds like TLT, EDV, ZROZ, TMF is still the play of the year.
Sounds like TLT, EDV, ZROZ, TMF is still the play of the year. Thanks OP
Yup, long dated zero coupon bonds. ZROZ
>After the last FOMC meeting, the 25-year treasury ETFs like ZROZ and SCHQ are at their lowest since 2013. >My question is when is a good time to buy treasury ETFs in order to make profits by the rate cuts. You're comparing things on the complete opposite end of the yield curve. The fed rates are overnight borrowing rates. The funds you mentioned are 20+ year rates. Those are heavily correlated with long term inflation expectations, NOT the fed funds rate
It's not the worst time to get into something like EDV or ZROZ, especially if you plan to hold for 3+ years. However you may be early and miss a better entry if yields continue to rise.
If you think the recession is here or close, buy ZROZ. Long Treas rates will fall. I'm doing it.
And ZROZ. ​ Imagine not even getting a coupon while JPowell fucks your position.
Last year was one of the worst year's in modern history for fixed income assets as rates increased rapidly from very low levels. The extremely low levels of starting yield elevated duration, so as rates increased bond prices were hammered. Given the timeframe and the average maturity of the fund (~6 years) you would have experienced the same thing even if you had purchased the bonds rather than the fund. Bonds can have a very large variation in risk depending on their credit rating and their term (longer term carries larger interest rate risk). Your bond fund carried moderate credit risk due to the investment grade corporate bonds, and moderate interest rate risk due to their term/duration being around 6 years. Thus you experienced moderate losses. Very short term treasury bills have cash like risk due to zero credit risk and very short term. Take a look at long term zero coupon funds (EDV, ZROZ) if you want to see how ugly losses can get with bonds.
Part of my portfolio is in ZROZ and TLT. I have been selling covered calls against those positions for additional income - personally, I like TLT because of better options liquidity. The big concern is that if inflation stays above target and short term rates remain above 5%, you will be significantly underperforming a money market strategy.
If you want growth in bonds and are patient look at STRIPS. You can get them in ZROZ. They move like 2x and 3X leveraged funds ( but aren’t) with large rate changes. Look at the chart and compare to rate hike chart. You’re welcome
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.
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.
ZROZ but I dont suggest that at all
If they start to cut rates aggressively, ZROZ or TLT Oil is going to go up over time due to ESG requirements. If it comes out of the ground it will get progressively more expensive over time.
TLT is 20 yr, ZROZ is longer, 25 yr +, so more sensitive to interest rate movements. I think it's the longest duration ETF you can buy, along with EDV from Vanguard, but I like ZROZ with better tax efficiency.
What's the difference between ZROZ and TLT, they both appear to have similar durations?
I would just go further and further out in duration when rates rise. Long term treasury ETFs like ZROZ (25+) are almost guaranteed to go up 50% sometime within 5 years as future inflation cannot be high as economic growth slows in developed markets. The real 30-yr yield is actually positive +1.6% right now as the 30-yr breakeven is only 2.2%.
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.
Personally I’m skeptical of the gold portion of the Dragon Portfolio, and I think the trend-following should be expanded. Here’s an example of a robust portfolio that still has significant growth potential: 40% stocks + 25% KMLM + 20% BLNDX + 15% ZROZ The stocks would heavily overweight those with higher value and profitability. I’ve described the evidence for this approach [here](https://github.com/investindex/Portfolio), with specific fund suggestions. KMLM trend-follows among currencies, government bonds, and commodities (including gold). BLNDX trend-follows across multiple asset classes and also holds developed market equities. ZROZ has US Treasury bonds with the longest possible duration.
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.
Well I'm assuming TLT/ZROZ will anticipate the cuts several months before they happen. We'll see I guess.
You can get out of MMF at any time. So he won't be locked in for the next decade. I have parked a bunch of cash there and expect to be getting close to 5% this year and into next year. This is risk free as I won't lose my principal unless US treasuries default. If that occurs, then the world is officially broken and we are back to the ice age. Stocks would be negative in this case. My plan is to move back slowly into equities when Fed starts to cut. Finally, you are literally parking money into TLT and ZROZ at 2.3% yield and downside risk. Yes you have upside reward but the Fed has literally said we won't be cutting until 2024. Again, they might cut but that would mean something is broken and again, everything will be down huge.
ZROZ makes huge moves. 52 week range is 147 to 77. It's a speculative play. With leverage you can make a killing.
What about zero coupon bond etfs like ZROZ?
Yes the dollar will go down. ZROZ holds zero coupon bonds so rate cuts make the value go up. ( on that note, when the dollar goes down, very often commodities go up so plan accordingly and plan ahead)
ZROZ... It's in the ticker name. Look it up at your broker.
Well I’m no expert either but I’ll give it a go. ZROZ is a zero coupon bond fund meaning the long term bonds it holds don’t pay a coupon ( somewhat like a dividend) however the zero coupon bonds or STRIPS are bought cheaper than face value and see gains through appreciation. Since they are not as steady as coupon paying bonds they can and do move greater based on rates. It’s not unheard of for them to move $18-$20 either way per 1 point of rate movement. So when rates are cut , and at some point they will be, every point down is about $18-$20 up in price of the ETF. That’s better than most inverse funds. So I’m adding regularly and late next year or early 2024 I’m hoping and expecting a 60%+ return when rates are cut. It’s a longer play than most on WSB would do and that’s fine but I’ll wait. Will turn it into another couple rental properties
As much as I understand the yield curve inversion, I'm a fucking stupid person can you explain ZROZ to me?
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.
Not as detailed an answer as above but I’m buying long treasury ETF ZROZ. It drops about $20 in share price for every 1% rate increase and conversely moves up about $20 for every 1% rate cut. While I do not know when ( guessing late 2023) rates will start to get lowered they will. In the mean time I collect a modest dividend and expect a nice 30%-40% return in the end. Somewhat of a contrarian play I suppose.
That's very true. I'll look into comparing TLT to ZROZ before I buy, but if my time horizon is only 6 months to a year wouldn't I want the volatility?
Thanks for the insight. Yeah I've been looking into for the past month or so but I use mostly equity ETFs. It didn't come on my radar again until the yield drop/ZROZ rise yesterday. Missed opportunity.
honestly, youre probably better off with TLT, you get more or less the same return profile as long dated zero coupons (the rally at the long end of the curve, when rates come down) but youll also get to clip a 2% coupon in the meantime. as expected TLT slightly outperforms ZROZ on an absolute basis, and vastly out performs on a risk adjusted basis as /u/tachyonvelocity pointed out the volatility of Zero coupons is higher, since it a pure spec rates play.
Those with the longest duration, which is the relevant variable, are EDV and (slightly longer) ZROZ and GOVZ.
I guess I’ll keep adding more ZROZ while I wait. They will cut rates at some point.
The volatility and yield risk exposure is directly related to duration of the fund. These are critical considerations in allocation decisions to most people. Investors seeking safe allocation will invest in low duration, high credit funds like SHY. Investors seeking exposure to interest rate risk factor will invest in high duration funds such as ZROZ, EDV, TLT. But they will be exposed to higher volatility and drawdowns.
Bond duration matters all the time. Active funds will go short or long duration when they feel they can take advantage of the yield curve. They generally have a target duration they need to maintain by prospectus, unless they are unconstrained. Passive funds will typically maintain the duration of their stated benchmark. Longer duration will go down more when rates rise, but go up more when rates fall. ZROZ is a good proxy for ultra long duration because they are Zero Coupon bonds. Shorter duration will go down less when rates rise, but also go up less when rates fall. SHY is a decent proxy as it targets 2 years
$ZROZ looks good if you speculate
Hopefully so. Buy some $ZROZ if you think so.
ZROZ is on sale. It’s a longer play but will do well late next year
Oh nice! I have recently invested in the ZROZ 25-year treasury bond.
Volatility up + price down = double or triple premiums for put options. A solid strategy considering Japan, Europe, and Chinas currencies are collapsing. ​ Bonds will tank again soon after china dumps US treasuries, then ZROZ and TLT will go to the moon in 6 months.
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?
>I can memorize the fact "longer duration is more sensitive to interest rates" (so ZROZ is best) but I don't understand why. I'm missing something. A $100 bond with 1% interest for 1 year is $101 at maturity. A $100 bond with 1% interest for 30 years is $134.78 at maturity. Suppose interest rates immediately go to 2% after you buy. A new $100 bond for 1 year is now $102 at maturity. So it is more appealing. So your $100 1% bond is now worth $99 because at $99, holding it to maturity($101) provides a 2% yield. so you lost 1%. Now let's look at a 30 year bond at 2% $100 at 2% after 30 years is $181.14. That's 25.6% LESS than your 1% bond! So now your 30 year 1% bond is worth ~$74.40, because at that price, holding for 30 years provides a 2% yield. Thus, we can see a 1% upfront loss in market value on the 1 year bond, but a 25% loss on the 30 year bond! This is simply due to better opportunities. You're "locking in" your income when you buy a bond.
>Interestingly enough, ZROZ is more tax efficient than TLT, despite people saying Zeroes funds are less efficient. ZROZ invest in zero coupon bonds , its not a zero fee fund it has an expense ratio of 0.15%;
$ZROZ prints when the FED pivots. And it’s on sale. Not one to move quick but it moves well.
ETFs you can buy with a good mix of 10/30 year bonds -> ZROZ and TLT
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.
15% 5yr TIPS (9% dividend) 15% CHK (10% dividend) 15% CWH (9% dividend) 15% AMLP (7.6% dividend) 25% ZROZ 15% cash
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.
Why has the price of US LTT ETFs (EDV, TLT, ZROZ, TYA…) been going up, lately? Are the several significant upcoming interest rates hikes already priced in?
As mentioned elsewhere in thread I have used mutual funds to extend ETF return data for bond funds. For treasuries, I used yield data from treasury.gov and FRED with a pricing model for constant maturity bond index. Here are the references for the bond pricing model: Swinkels, L., 2019, Treasury Bond Return Data Starting in 1962, working paper. Tuckman, B., and Serrat A., 2012, Fixed Income Securities Tools for Today's Markets, 3rd edition, John Wiley And Sons Ltd. Swinkels applies the model to extend treasury returns. The original model is from Tuckman/Serrat which also provides models for constant maturity zero-coupon bond funds in case you want to estimate returns for funds like ZROZ or EDV. Duration = [1 - Swinkels, L., 2019, Treasury Bond Return Data Starting in 1962, working paper. Tuckman, B., and Serrat A., 2012, Fixed Income Securities Tools for Today's Markets, 3rd edition, John Wiley And Sons Ltd. The model requires you to calculate duration and convexity as functions of yield and maturity. Then the total return is -D(dy) + C/2*(dy)^2 + yield. You can also include a term for alpha (negative alpha for fund expenses). You can use ETF data to calibrate the maturity and alpha inputs. Everything else is calculated from the historical yield data. I estimate the following parameters: TLT: T=25 years, alpha = -0.5% IEF: T=7.5 years, alpha=0.0% SHY: T=2.1 years, alpha=0.1%
Mention ZROZ 1 too many times.
Run the same back-testing again, only this time, instead of using AGG, use a fund that holds long-term US Treasury bonds like TLT, ZROZ, or UBT for your bond exposure.
In my opinion AGG is a poor choice for an equity heavy portfolio. It has 26% corporate bonds which share a lot of risk exposure with your equity allocation particularly in a financial crisis like the GFC. 21% MBS which boost yields but performed terribly in the GFC. 13% cash which is safe but has zero expected return. 39% treasuries were the only "safe" asset in the GFC but AGG tends to be skewed to low duration which dilutes the risk but also dilutes the return. If you are looking for diversified fixed income AGG is a good option. But if you are looking for diversifying equity risk in an equity heavy portfolio then you should target bonds with lower correlation, and higher risk exposure like long term treasuries: EDV, ZROZ, TLT.
I owned fucking ZROZ last year. I have repented.
Flairs have to be earned like bitching about owning ZROZ for months.
Easy way to track 30 year yield curve in real time is with ZROZ. If its drilling yields are almost always going up on the long end of the curve.
Yeah sorry. Owned ZROZ until a few weeks ago so yeah long treasuries can fucking blow me.
Yeah not sure of greeks on it but highest traded long treasury etf. I owned ZROZ which was an even bigger POS.
Wish I didn't. Fucking owned ZROZ until last week. Fuck bonds.
Trust me as a former ZROZ bag holder. Bonds sucks ass and are a shitty hedge.
I thought my ZROZ might maybe cushion the blow. Narrator voice: It did not.
Ouchie just took a 15k realized loss dumping ZROZ so will probably moon. Treasuries are trash for a long time to come.
No it provides liquidity. Large big ask spreads totally suck I can tell you as a ZROZ owner. Increasing my spreads and taxing me is a quick way for me to be like fuck it next election and stay home.
I wouldn't commit everything to 3X funds. There's a greater likelihood of these higher leveraged funds closing down in a crisis - either because the AUM drops so low the fund is no longer profitable or the SEC shuts it down because investors lose so much. You could be forced to lock in the deep losses of a 3x position without the opportunity for 3x returns to recover. Also, treasuries and equities have exhibited strong negative correlation when rates are generally falling as they have been for decades. But the correlations tend to turn positive when rates are rising. Fortunately, rates tend to fall during market/financial crises but if we go through a crisis and long term rates go up instead of fall this portfolio would get hammered. The gold, VIX, and cash in your original portfolio give some diversification of your diversifier in case the next crisis doesn't look like recent ones. These allocations probably look like a drag on return when you look at recent historical data but they could be insurance if the future looks different from the recent past. One other thing to examine is whether the 2x or 3x treasury has much benefit over 1x long term zero coupon funds like ZROZ or EDV. Zero coupon increases the duration (interest rate sensitivity) lowering the correlation which can be more beneficial in a portfolio than leveraging the return and volatility.