TLT Stock Has Fallen 14 Percent in 2021, Might Be a Good Investment

Treasury yields have fallen after a dovish tone from Fed Chair Jerome Powell. Is TLT stock a good investment now or will it fall more?

Mohit Oberoi, CFA - Author

Mar. 18 2021, Published 11:20 a.m. ET

Man looking on a laptop
Source: istock

The iShares 20+ Year Treasury Bond ETF (TLT) fell 0.75 percent on March 17 and opened lower on March 18. It has lost over 14 percent YTD but has risen at a CAGR of 6.4 percent over the last 10 years. What’s the forecast for TLT? Is it a good investment despite the recent weakness?

Article continues below advertisement
Article continues below advertisement

So far, 2021 hasn’t been a good year for bond investors. Bond yields and prices are inversely related. When bond yields rise as they have risen in 2021, bond prices fall. This leads to capital loss for investors who are invested in these bonds.

TLT is an ETF

TLT is an ETF that invests in U.S. government Treasuries. U.S. government Treasury bonds are regarded as one of the safest investments globally. The basic premise is that the U.S. government wouldn't default on its obligations, especially when they are priced in the U.S. dollar. 

Article continues below advertisement
tlt versus sandp
Source: Koyfin

TLT versus S&P 500

TLT ETF explained

TLT invests in U.S government Treasuries that have a remaining maturity of over 20 years. As of March 17, the ETF had a weighted average maturity of 26.17 years. Given its maturity profile, TLT is riskier compared to ETFs that invest in bonds with lower maturity. Long-dated bonds are more sensitive to changes in interest rates than short-term bonds.

Article continues below advertisement
Article continues below advertisement

As of March 17, the ETF had an effective duration of 18.42 years. The effective duration measures the risk of a bond and measures the sensitivity of the bond to changes in interest rates. The ETF has a weighted coupon of 2.74 percent with an average yield to maturity of 2.40 percent.

TLT's stock price

TLT was trading 1.35 percent lower at $133.47 when the market opened on March 18. The ETF has a 52-week trading range of $133.29–$172.25. TLT hit its 52-week low on March 18 and is now down 22 percent from its 52-week highs. TLT is in a bear market territory since it has fallen over 20 percent from its highs.

Article continues below advertisement
tlt investment
Source: Unsplash
Article continues below advertisement

TLT pays a dividend.

U.S. government Treasury bonds pay interest on a semi-annual basis. TLT declares dividends frequently. It has declared two dividends so far in 2021 and the most recent dividend was paid on March 5. 

Article continues below advertisement

TLT's stock forecast

TLT's forecast depends on your view of bond yields. The yields on U.S. government bonds have come off after Fed Chair Jerome Powell reassured markets that the Fed won't raise rates quickly. The Fed hinted that the rate hike wouldn't happen before 2024 even though it expects U.S. inflation to rise to 2.4 percent in 2021.

Article continues below advertisement
Article continues below advertisement

Rising inflation is negative for bonds since it prompts the central banks to raise rates. However, since the Fed moved to average inflation targeting in 2020, it won't raise rates as soon as the inflation crosses above 2 percent and will wait for it to average 2 percent.

Buying TLT depends on movement in yields.

You can buy TLT now if you are of the view that the yields on U.S. government bonds aren't going any higher from here. While there's a school of thought that bond yields have a lot of room to run higher, many others think that yields will eventually fall since the Fed isn't in a mood to spoil the party with its rate hikes.


Latest Personal Finance Guides News and Updates

    Opt-out of personalized ads

    © Copyright 2024 Market Realist. Market Realist is a registered trademark. All Rights Reserved. People may receive compensation for some links to products and services on this website. Offers may be subject to change without notice.