The iShares 25+ Year Treasury STRIPS Bond ETF (GOVZ) seeks to track the investment results of an index composed of U.S. Treasury STRIPS with remaining maturities of 25 years or more. Treasury STRIPS are zero-coupon bonds created by separating the principal and interest payments of Treasury securities, providing pure exposure to long-term interest rate movements.
How It Works
GOVZ uses a passively managed approach that holds Treasury STRIPS bonds with maturities exceeding 25 years, weighted by market value outstanding. The fund purchases zero-coupon Treasury securities that pay no periodic interest but are sold at deep discounts to face value. Holdings are rebalanced monthly to maintain target maturity exposure as bonds age. The portfolio typically contains 15-25 individual STRIPS positions with an average duration of approximately 20-25 years.
Key Features
- Pure zero-coupon structure eliminates reinvestment risk since no periodic interest payments are received until maturity
- Extremely high duration sensitivity provides amplified exposure to long-term interest rate changes for tactical positioning
- 0.00% expense ratio makes it one of the lowest-cost ways to access ultra-long Treasury duration exposure
Risks
- This ETF can lose significant value when interest rates rise, potentially declining 20-25% for each 1% rate increase due to ultra-long duration
- Zero-coupon structure means no current income until maturity, making it unsuitable for investors seeking regular cash flow from bonds
- Extreme interest rate sensitivity creates high daily volatility that can exceed equity-like price swings during rate uncertainty periods
Who Should Own This
Best suited for sophisticated tactical investors with high risk tolerance seeking to hedge against deflation or bet on falling long-term rates. Appropriate as a small satellite position (2-5% allocation) for investors with specific duration timing strategies. Requires active monitoring due to extreme volatility and should be held for weeks to months, not years.