Bond ETFs

Emmy should be the case but not always the case the way some wall street cowboys operate .

Of course, it’s up to the investor to check which strategy a particular ETF follows in terms of what bonds it is buying and when it sells them. That certainly makes the ETF the more complex product.

However, if you buy let’s say a 10-year bond, hold it to maturity, and then directly buy a new 10-year bond for the money after it matures, you won’t magically have more money than an ETF which invest into 10-year bonds (even if it sells them before maturity). You might get lucky that at the time your bond matures, you get a more favorable interest rate by chance.

But again: Then you’re also speculating on interest rates (at the time when you buy your bond and at the time when it matures).

The ETF will keep selling bonds (as they mature or become to close to their maturity), but will also keep buying new bonds at their current market value. If you invest in individual bonds, you also have a risk of unfavorable interest rates at the time your bond matures.

It’s never a bad idea to hold some kind of medium/long term mix of bonds in your portfolio. For the super lazy (but effective), just buy a bond ETF like the Vanguard Aggregate Bonds (I suggest to buy one hedged to your local currency to reduce risk):

“Thus, your bond also goes down in value (even if you’re not selling). Just like the ETF.”

But this is where the bond is not “just like the ETF”. Regardless of what happens with interest rates, the bond’s value will gradually move toward par value as it approaches maturity, and will actually hit par value upon maturity. The price of TLT will not behave this way – if interest rates rise and stay high, TLT’s price will fall and stay fallen. If interest rates fall and stay low, TLT’s price will rise and stay risen. There is no maturity for TLT, and TLT’s price will not gradually revert to “par” – because TLT is not a bond.

Your comments on reinvestment risk and opportunity cost are valid. Reinvestment risk is a characteristic of all fixed income investments (and not TLT because TLT is not a bond). And opportunity cost is present in all financial decisions that we humans with limited capital ever make.

Anyway, I think I’ve said enough – if you folks want to buy bond ETFs, go right ahead. But for the love of God, please don’t tell other people on this platform that bond ETFs and bonds are “the same” or “almost the same” because that’s just factually incorrect. It’s not a matter of opinion. Read the damned ETF prospectuses and stop following some idiot writing on Yahoo Finance or whatever.

In the real world, I am invested heavily in short-term treasuries yielding over 5% and I am very happy with this situation. I happen to believe in “higher for longer” and I’m waiting for 5%-plus 10-year yields before moving out further in terms of duration. If and when I buy the 10-year treasuries, my intention will be to hold them to maturity and collect the income. But my view on rates is nothing special or unique, and I might very well be wrong – I just know that this strategy will give me yield and zero credit risk over the next 6-24 months. Nuff said – caveat emptor to all and to all a good night.


I was interested in why you believe this, because from what I understand high interest rates cause US debt repayments to very burdensome, I wonder how long high interest rates can and will be maintained once things start slowing down a bit. Too high interest rates curb inflation and you want some inflation to inflate away the debt

I would say locking in a good whack of 5 or even 10 year bonds is a pretty good bet now, of course nobody has a crystal ball so keep a portion for further investment if they do increase.

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Indeed. I have been waiting for 5%-plus on the 10-year to start nibbling, and here we are at 4.95%…

“Higher for longer” doesn’t mean that long-term rates will necessarily continue to soar from here to the moon, just that (in my opinion – which might be wrong and this is not investment advice) hopes for a quick Fed pivot back to ZIRP and QE are likely to be dashed, at least until inflation cools down sustainably.

If that’s correct, then rates should remain high for a while (albeit not necessarily much higher than they are now).

So yeah, adding a bit of longer duration treasuries into the portfolio mix is certainly tempting. I mean, let’s face it, 5% with zero credit risk for the next ten years is really unbelievable compared to what we’ve become accustomed to since the GFC.


One would say now is the time to take the dive and not wait for 0.05%.

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…and 4.99% this morning.

Yes, waiting for that extra 1 basis point would be silly. But the strategy, in my opinion, is to nibble, not to gorge.

That slowly-slowly approach might be a mistake, if it rapidly becomes clear that the US is both in for a recession and for sharply lower rates of core PCE inflation. We shall see.

I’ve been stashing my sidelined money into:

It’s my understanding that with TFLO (and FLRN) there’s basically no interest rate risk, and the fund won’t get crushed if interest rates come down – it’ll just pay out a lower yield to match. The effective duration is 0.01. Meanwhile collect a yield pretty much on par with the fed rate.

Seems like all of the benefit of a bond but with full liquidity.

If we have a market slump I’ll move funds back into stocks. For now the risk vs reward on stocks isn’t that appealing (tho I’m still heavily invested).

Another article.

The Gems Hiding in Plain Sight in the Treasury Market

You didn’t have to be a financial wizard to get a safe return of more than 7 percent on your money for decades to come. All you had to do was buy a 30-year U.S. Treasury bond in the last nine months of 1994.


10-year bond rates were at 4.7% when this discussion started and then breached 5.0% briefly, and have since fallen down to around 4.6%. As a result, anybody who bought TLT 2 weeks ago would be up 6% on the trade. Congratulations.

But remember that TLT is just a bet on the direction of long-term interest rates. It is not the same thing as buying a basket of long-term US treasuries.

Now, if long-term interest rates continue to move south inexorably for the next ten years, like they have for the previous 40 years, then TLT will give you good returns.

So the main question that you need to ask and answer is as follows, and I quote: Whither long-term interest rates?

I came across this article on defined maturity bond ETFs. Based on the WSJ description, these things appear to be exchange-traded funds that invest in bonds, hold the bonds to maturity, and themselves have a maturity date at which point you would get your principal back.

I still don’t recommend these things, but for those of you who insist on donating value to the vampires of Wall Street, take a look. And for anyone who believes (against all evidence) that TLT is “the same thing” or “almost the same thing” as holding a portfolio of individual long-term treasuries, please read the article to understand why that’s not accurate.

Because some guy online might lie to you, but surely the Wall Street Journal, in cahoots with Blackrock and Invesco, would never mislead you.

I do not think anybody said they are the same thing. They have both have pros and cons.

I just bought five individual bonds a few days back to lock in some yield. Not very exciting, sure, but getting around 5% for the next 6-10 years (I have a ladder of 5 bonds), pretty close to guaranteed, sounds pretty good to me.