iShares 25+ Year Treasury STRIPS Bond ETF

GOVZ tracks a market-value weighted index of US separate trading of registered interest and principal securities (STRIPS), with remaining maturities of at least 25 years.

We previously issued a “Strong Sell” on iShares 25+ Year Treasury STRIPS Bond ETF, as the model we follow showed an extreme level of overvaluation. GOVZ's long duration makes it highly sensitive to yield changes, with an effective duration of 26.57 years. We dissect the current data and tell you why Treasuries are beginning to look appealing.

GOVZ: When Do You Step In To Buy Treasuries?

Investing in STRIPS, especially through the iShares 25+ Year Treasury STRIPS Bond ETF, offers a pure play on long-term interest rates without regular coupon payments. GOVZ holds U.S. Treasury STRIPS with an average maturity of 27.21 years, making it highly sensitive to interest rate changes and ideal for targeting specific durations. GOVZ's unmatched duration exposure is beneficial for investors predicting long-term rate drops, though it carries significant risks if rates rise due to its high sensitivity.

GOVZ: A Pure Play Way Of Betting On Treasuries

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The ECB cut rates by 25bp as widely anticipated, but a slightly hawkish tilt bear flattened the EUR curve, which in our view remains priced aggressively. In the US, as the markets head towards the Fed's first rate cut, the probability of a larger cut rose slightly on Thursday.

Rates Spark: ECB Presser Bear-Flattened The Curve

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We have highlighted three ETFs each from the best and worst-performing zones of last week.

Top and Flop ETFs of Last Week

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Treasuries are poised for their longest monthly winning streak in three years on September rate cut bets.

ETFs Soaring on Treasuries' Longest Winning Streak in 3 Years

The recent equity rout has led investors to seek refuge in Treasury securities, perceived as safe-haven assets.

Treasury ETFs Gaining on Slowdown Concerns, Rate Cut Bets

On our last update on GOVZ, we gave it a Strong Sell based on our outlook for no rate cuts. GOVZ has underperformed SPY by 80% on an annualized basis and that is one of the largest on record. We look at where things stand and update our thesis.

GOVZ: Zero Rate Cuts And More Pain For Treasury Bonds

It generally takes a few years for changes in Federal Reserve rates to fully impact bond fund dividends. Bond funds are still benefitting from prior rate hikes. Perhaps by enough to cancel out any future rate cuts. By my estimations, and under current Fed guidance, most bond funds would only start to see declining dividends in 2025, at the earliest.

Estimating The Impact Of Lower Rates On Bond Fund Dividends

iShares 25+ Year Treasury STRIPS Bond ETF provides exposure to the principal portion of Treasury STRIPS. It is a passive ETF that has tracked its index impressively. We review the fund and tell you why the setup for long duration bonds is poor and what alternatives you should consider.

GOVZ: Now Might Be The Worst Time To Go Long, Long Bonds

The world's largest bond market made a remarkable recovery in November after experiencing difficulties earlier in 2023. It is now on track for its best month since March.

Treasury ETFs on Track for Best Month Since March

GOVZ is exposed to a major duration factor that speculators can use for their portfolio building. GOVZ consists of zero-coupon bonds with a duration of almost 27 years, making it highly sensitive to changes in interest rates. With the current inflationary pressures and the likelihood of higher long-term rates, GOVZ is very risky until rates have likely peaked. Nothing points to the upside for GOVZ as of now.

GOVZ: Not The Time For Extreme Duration

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The market is showing signs of weakness and lacks sustainable upside momentum. The recent sell-off has broken key moving averages, indicating a potential shift in market sentiment.

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Rating agency Fitch downgraded the United States to AA+ from AAA on Aug 1.

ETF Areas in Focus on Fitch Downgrade of Credit Rating

GOVZ is a portfolio of STRIPs, so basically zero coupon bonds with an overall effective duration at 26.73 years. High duration play means a lot of sensitivity to prevailing interest rate expectations, especially long-term rates that are compounded many times over. Markets assume higher structural inflation and rates, which is conservative. But there are ways for long-term rates to go back to lower levels.

GOVZ: Aggressive Duration Play, A Bet On Long-Term Rates

Simplify Risk Parity Treasury ETF

Treasuries continued to gain momentum to start April as yields slipped to near multi-month lows. The latest batch of data has fueled worries of recession, raising the appeal for Treasuries as a safe haven investment.

How Treasury ETFs Spiked Last Week on a Drop in Yields

While a US recession is widely anticipated, investors and analysts are underestimating its likely severity. Conditions today are remarkably similar to those seen in early 2008, with property prices falling and savings rates extremely low and facing upside pressure.

GOVZ: An Aggressive Bet On A Likely U.S. Depression

A host of factors like jobs reports, easing inflation, and recession fears are pushing yields lower, thereby providing an upside to the Treasury market.

Treasury ETFs Rise on Slowdown Concerns, Lower Yields

2023 is likely to be a year of pain for risk assets. The economy remains on track to enter recession.

My Best Idea For 2023: 30-Year Treasury A Port In The Coming Storm

GOVZ debuted in September 2020, and has been losing money since. That may explain why we are the first to write about it on Seeking Alpha. However, the current interest rate environment has suddenly made long-term U.S. Treasury ETFs appealing.

GOVZ: For The First Time In This Young ETF's Life, It Looks Appealing

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While there is upward pressure on market rates in 2022, it's not coming from higher net supply. In fact, lower net supply can help to richen government bonds. On top of that, we should see flatter curves over the whole of 2022. We also anticipate some upward pressure on USD Libor.

Rates Outlook: Swap Spreads To See Widening Pressure

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The deficit spending that supported the economy in 2020 is showing up in hot inflation numbers in 2021. While I think the inflation numbers will get better in 2022, I do not believe they will get back to pre-pandemic levels because of owners' equivalent rents and wage gains in the CPI.

Mind The Bond Market

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At the November FOMC meeting, the Fed officially announced that it would begin tapering its bond purchase program, starting in mid-November. When the Fed began tapering its QE3 program over the course of 2014, the coupon supply from the U.S. Treasury was stable, leading to an increase in net supply takedown from the private market.

Tapering Impact On Treasury Supply

After months of decline, Treasuries are back in favor, logging in the best week in a year as inflation fears eased.

5 ETF Winners as Treasuries Post Best Week in a Year

With a much-anticipated jobs report out of the way on Friday, investors are breathing a sigh of relief, as the Federal Reserve is unlikely to begin tapering, despite the strong payroll data. Hiring continued in May, with the addition of 559,000 new jobs, but that figure still wasn't enough to compel the Federal Reserve to discuss tapering [.

Fed Stance Unaffected by Jobs Report as Treasury ETFs Climb

News for iShares 25+ Year Treasury STRIPS Bond ETF ETF (GOVZ)