PIMCO Treasury Bond ETF ZROZ Hits All-Time Low
PIMCO bond ETF falls to record low
PIMCO's ZROZ, an exchange-traded fund (ETF) that holds claims on the principal of US Treasury bonds, has fallen to an all-time low of $53.73.
The fund is down 16% so far this year and 73% from its March 2020 peak, even though the US government guarantees the bonds' principal. The US has not defaulted on sovereign debt since 1933, apart from a $122 million technical delay in 1979.
ZROZ losses at a glance
- ZROZ is down 21% over the past 12 months and 63% over the past five years.
- The fund trades at $53.73, its lowest price ever.
- It passively tracks an index of 25-30 year US Treasury Principal STRIPS, which pay no interest.
Why an interest-free bond fund lost so much
STRIPS are US Treasury bonds that pay 0% interest and only repay their principal at maturity. Investors value them based on the present value of that final payment. When Treasury rates were very low years ago, that present value was much higher, and ZROZ once traded above $202 per share.
Today, current 30-year Treasuries pay 5.64% annually. Because modern bonds pay interest while STRIPS do not, the present value of long-term principal repayment has collapsed. The ETF's decline is simply a reflection of the fall in value of its holdings, not the result of an active manager's choices.
Confirmed facts about the fund
The fund's prospectus states that an investment in the fund is not a bank deposit and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The fund holds AA-rated assets, charges a 0.15% management fee, and has paid $3.25 per share in trailing 12-month dividends.
Since the ETF launched in 2009, every buyer has lost money on the share price, excluding dividends. Even counting dividends, an investor would have had to buy before September 2011 to make any money.
Why the decline matters
ZROZ is mainly used as a hedging instrument, letting bond traders trade the isolated value of long-term principal repayment separately from other trades. The fund's decline shows how a change in interest rates can reduce the value of even government-guaranteed principal when it pays no interest.
Sources
Newisty Editorial Team covers technology, cryptocurrency, digital products, online platforms, developer tools and the wider digital economy. Our content is researched from official sources, company announcements, public documentation, market data and other primary or reputable sources. Articles are reviewed and edited before publication for clarity, accuracy and useful context.
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