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I have purchased shares of a bond ETF, ticker symbol: SPTL (SPDR Portfolio Long-Term Treasury ETF). The prospectus states: "the fund's goal is to track the total return of an index that measures the performance of the long-term U.S. Treasury bond market (the Bloomberg US Treasury Long-term TR index)". I have wondered what exactly "the performance" means. I understand the Total return index also counts the coupon returns; but, basically, does "performance" here mean the average price of the long-term Treasury bonds included in the index?

As far as I know, the S&P 500 tracks the total market cap of 500 companies included in the index. However, I downloaded the Bloomberg Barclays Bond Indices Methodology booklet, and have read it. But, because they are total return indices, the formulas are too complicated for me to understand.

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D Stanley
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domino
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1 Answers1

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Index are a way to measure the return of a basket of instruments. For an equity index it's naturally a basket of stocks. For a bond index it's a basket of various bonds. A total return bond index's performance will include the coupon return (which is fairly stable for the basket) and the price return, which means as interest rates go up, the price of the bonds in the index go down and the index goes down. If you look at the history of this index, you see that it's value has gone down in recent years as interest rates have gone up.

If you are buying into this type of ETF, you are essentially wanting interest rates to go down, or stay the same if you're comfortable with the current yield.

mhoran_psprep
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D Stanley
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