Fixed Income & ETF Mechanics
Duration, yield curves, and how ETFs actually track their indices
In 2022, the iShares 20+ Year Treasury Bond ETF (TLT) — the most popular long-duration bond fund held by retail investors — fell 31%. Not a stock. Not a speculative asset.
A portfolio of United States government bonds, the asset class universally described as 'safe.' The decline was larger than the S&P 500's COVID crash of 2020. The mechanism was simple and entirely predictable to anyone who understood one number: TLT's modified duration of approximately 17.
When the Federal Reserve raised the federal funds rate by 425 basis points through 2022 (from near-zero to 4.25-4.50% per the December 2022 FOMC statement), the duration math said: -17 × 4.
25% ≈ -72% loss. The actual loss was 'only' 31% because the yield curve flattened (long rates moved less than the Fed hiked short rates) and convexity provided a partial offset on large moves.
That is the opening. Finishing a lesson is where it stops being interesting and starts being useful: the full lesson runs to 2 sections and ends with 5 practice questions. A free account is what opens the rest, and the other 255 lessons in the Academy with it. No card.
What this lesson covers
- 1Duration — the single number that quantifies interest-rate risk
- 2Where to see this on the platform