Dec

18

TLT follow-up, from Big Al

December 18, 2023 |

TLT was way down since we discussed it at the end of August. Interestingly, HYG down nowhere near as much and still ahead of TLT YTD. My intuition would *not* be to see a narrowing of the spread between UST and HY.

Zubin Al Genubi responds:

Bonds have positive convexity, and will experience larger and larger price increases as the yield falls.

Alex Castaldo explains:

I am disappointed that the major ETF web sites (etfdb.com, etf.com, etc.) don't seem to give Duration values for Bond ETFs in a reliable and consistent way (sometimes they have it sometimes they don't). With a little effort I was able to find the following on 2 different sites:

TLT Portfolio Data
DURATION 16.11
YIELD TO MATURITY 5.19%

HYG Portfolio Characteristics
Average Yield to Maturity as of Dec 15, 2023 7.64%
Effective Duration as of Dec 15, 2023 3.37 yrs

Assuming these are both correct, up to date, etc. we can see that the Duration (responsiveness of price to yield change) of TLT is about 4.7 times that of HYG. And this is quite common when comparing high yield and high rating bonds (or bond funds).

Zubin Al Genubi adds:

Convexity, along with duration explains bank issues with rapid yield changes, and TLTs rise this month.


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