SGOV & TLT: A Tale Of Two ETFs And The Duration Trade

Summary

• The highly anticipated 'duration trade' in long bonds like TLT has underperformed despite the Fed lowering rates by 100bp since their peak.
• TLT's price hasn't rebounded as expected because its yield hasn't shifted enough, even though short-term rates have declined. In fact, YoY, long rates have risen!
• I've consistently favored the short end of the curve, particularly the SGOV ETF, which has provided reliable returns during this period. I continue to endorse it moving forward.
• Parking cash in SGOV has been a top-performing strategy as the Fed drags their feet in cutting rates. Replacing Powell likely won't be enough to turbocharge rate cuts.
• However, we have new tools to address the duration trade that could replace your TLT allocation and let you buy more SGOV.

fotyma

Introduction

One of the most captivating trades touted in 2023 was the "duration trade," or essentially making a bet that interest rates, which had risen at a record pace starting the year prior, would have to fall and thus bring up the

Analyst’s Disclosure:I/we have a beneficial long position in the shares of SGOV, RFIX either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.