Hans (@FFH) su getquin

1Anno·

Good morning (-:

I would like to start a discussion about the $TLT because I don't think I have understood the principle behind it yet. In simple terms: this is an ETF which invests in a part of the 20 year government bonds of the USA.

A few assumptions:

if the interest rate continues to rise in the USA, will the price of the ETF fall because the "old government bonds" are not as attractive as the new ones?
what happens if the interest rate stays the same, the price should not fluctuate much, except when the stock market weakens and bonds become more attractive?
if the interest rate goes down, the price should go up because the old bonds have a better yield than the new ones? Equally, however, stocks become more attractive again and compete?
the ETF itself has a payout rate of currently between 3-4%, when is that paid out (semi-annually, in January?) - does the price then fall accordingly - the chart does not look that way

Looking forward to the discussion.

Kind regards

5 Commenti

Rmann@Epi

1Anno

You seem to think of bonds in a similar way to stocks. But they work a little differently. TLT invests in US government bonds with a maturity of over 20 years. So that includes 30 year ones. The bonds are never held to maturity, but are exchanged for new long-dated ones beforehand. 2. The price of the bonds is essentially determined (with a somewhat complicated calculation that takes into account inflation and prime rates, for example) by the expected interest income over the next 20+ years. I.e. you basically have 20+ leverage on expected interest rates. If they rise, the price of the bonds, and thus of the ETF, falls. 3. If the expected interest rates remain the same, nothing will happen to the bonds. If the current key interest rates remain the same, this says nothing about the changes in expectations. 4. A bond does not fall in price due to coupon payments. So neither does a distributing ETF. Accordingly, an accumulating ETF rises by the distributions. In most cases, reinvesting bond ETFs are also somewhat more expensive than distributing ETFs. 5. If you want interest payments, a $XEOD is currently more attractive because of the inverted yield curve.

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TomTurboInvest@TomTurboInvest

1Anno

The TLT is a bond ETF, one of many. The main points have already been explained by @Epi. Meanwhile you have a huge choice of bond ETFs, from ultra-short to long-dated bonds, etc... Details on how they work can be found via Google and relevant channels.
Compared directly in bonds you are with ETF mostly cheaper from the fees and more flexible in terms of denominations, easy to trade like stock ETF. Depending on your distribution wishes, from monthly to quarterly to annually. The TLT is eg not tradable through my broker, so I have not dealt in detail with it. But I have had short- and medium-long to 10-year. But in the meantime I have switched all of them to $XUHY. I am currently quite happy with it, a little over 6% distribution plus currently +2.6% price increase. If you are interested, you can also take a look at it.

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Smudo@Smudeo

1Anno

Point 3 would interest me since the rate November 22 was at 135. Question also why is the value falling even before interest was introduced. So in 2021....

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