Consider a target-maturity bond ETF that holds only treasury bonds: iShares iBonds Dec 2029 Term Treasury ETF (NASDAQ: IBTJ). It has an expense ratio of 0.07% on already-low treasury bond yields. What are the advantages of investing in such an ETF when I can buy treasury bonds that mature in 2029 on my own? Am I missing something important?

1 Answer 1


You can't currently buy a bond that matures in Dec 2029 directly from the US Treasury. 10-year bonds that are being sold now mature in May, 2030. Dec 2029 bonds are now "off-the-run" and are only sold in secondary markets. Also, since interest rates have declined since these bonds were issued in Dec, 2019, you'll probably may more than par for the bonds, so you won't get the full yield of the rates that they pay. You'll get closer to the current yield of 10-year T-bonds, which is about 0.7% according to Treasury Direct. So you may pay 140% of the face value for a bond issued last December that pays a 5% coupon, since 10-year bonds now pay less than 1%.

Additionally, If you hold an individual bond, you can only capture gains due to interest rate changes if you sell the bond. With an ETF, they can buy and sell bonds to capture gains based on interest rate changes before the bond matures. The ETF may also be more liquid (easier to buy/sell) than individual off-the-run treasury bonds.

So if you intend to hold the bond until maturity, buying direct may be cheaper, but if you're looking to capture value in the 10-year interest rate an ETF may be more effective.

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