TLT
🛡️ Long-term U.S. Treasury bonds, accessible via ETFs like TLT, historically rise when the Fed cuts interest rates during economic crises, potentially offsetting stock market losses.
📈 Current yields on 20+ year Treasury bonds are relatively high (around 4.8% discussed), presenting an attractive entry point if rates fall towards the historical neutral range (2-3%) in the coming years.
🔄 Investing in this type of bond ETF offers strategic flexibility; it can potentially be sold at a profit during a market crash, providing liquidity to buy undervalued stocks.
@Invierteygana:
“Currently, I think we are at a great moment to invest in an ETF of U.S. bonds of 20 years or more, and that’s why I invested this week. The DTLA ETF is a good way to invest in U.S. sovereign bonds of 20 years or more. Why is it at lows? Well, these lows in euros are due to the current high yield of 20-year bonds, coupled with the rise of the euro against the dollar in recent months. What return can we expect from the ETF? More or less the annual yield offered by U.S. 20-year bonds at the time of purchase. The higher the yield at the time of purchase, the better. According to the ETF’s factsheet updated March 31st, the annual yield was 4.66%. At the time of recording the video, it’s at an annual yield of 4.84%, but this varies. To this, we must add 16.11% for each percentage point the yield of 20-year bonds drops after our purchase. We’ve already explained why the price of bonds rises when the yield falls. If the bond yield rises, 16.11% would be subtracted for each percentage point it increases. This 16.11% comes from the ETF’s factsheet. This would be the return in dollars. The return in euros will be equal to this return plus whatever the euro falls against the dollar from the time of purchase to the time of sale; it would be subtracted if the euro appreciates against the dollar. For example, suppose we buy now, and within a year, the yield of the 20-year bond drops to 2.84%, meaning it drops 2%, and we sell the ETF. We would have earned 4.84% from the coupons plus 2 * 16.11%, totaling 37% in dollars. I’m not saying this will happen; it’s just an example. The Fed considers the neutral interest rate to be between 2% and 3%. So, in the next 10 or 20 years, it’s most likely that the interest rate will average between 2% and 3%. We can conclude that the further above this range interest rates are at a given moment, the more likely they are to be lower in a few years. Now, the yield on 20-year bonds is near 5%, so it seems more likely that in a few years the yield will be lower than higher than the current one. In case of an economic crisis or recession, the normal thing is for the Fed to lower interest rates, as they did in previous recessions. Fed rate cuts help lower the yield on U.S. bonds. This would cause the TLT ETF to rise. In those moments, the stock market falls, so the ETF compensates for the stock market drops. The good thing about complementing a stock portfolio with an ETF of this type is that when there are large drops in the stock market due to an economic crisis, the TLT ETF can be sold with gains, and that money obtained can be used to buy cheap stocks.”
Watch the exact part of the video where @Invierteygana talks about iShares 20+ Year Treasury Bond ETF here:
Watch the video on YouTube
Read more articles analyzing iShares 20+ Year Treasury Bond ETF (TLT) at the provided link. TLT stock.
