State Street SPDR Portfolio Long Term Treasury ETF

SPTL

Market cap $10.5B

SPDR Portfolio Long Term Treasury ETF offers 14–15 year duration exposure, highly sensitive to yield curve shifts at the 20-year mark. Recent macro events, including Fed policy and Hormuz crisis developments have flattened the yield curve, with the latter effect directly benefiting SPTL. We believe risks persist around the durability of the Iran deal due to lack of clarity, and difference in agreement points and assertions made by Trump domestically about "red lines".

SPTL is an efficient way to get exposure to the long-duration segment of the Treasury market, with low fees and similar performance to TLT. Its recent performance has been impacted by higher inflation expectations amid higher oil price levels. Short-term and longer-term conditions constitute a neutral outlook.

State Street SPDR Portfolio Long Term Treasury ETF (SPTL) faces unattractive risk-reward due to macro headwinds and geopolitical risks impacting long-duration Treasuries. SPTL's expense ratio is slightly higher than iShares TLT, despite nearly identical duration and mandate, making TLT a marginally better choice. US rate cuts may ease future debt supply concerns but undermine USD demand amid isolationist policies, weakening reserve currency status and the lower nominal return from yield.

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U.S. bond yields have surged, likely due to President Trump's proposed policies, which many believe will spark inflation. We think the market has overreacted by assuming Trump's proposed policies will be implemented and/or lead to a worst-case scenario. We think the SPDR® Portfolio Long Term Treasury ETF offers a low-cost opportunity to capitalise on elevated yields.

The ECB cut rates by 25bp as widely anticipated, but a slightly hawkish tilt bear flattened the EUR curve, which in our view remains priced aggressively. In the US, as the markets head towards the Fed's first rate cut, the probability of a larger cut rose slightly on Thursday.

The first cut is the deepest — so they say. As with all complicated relationships, this mantra may certainly ring true for the Federal Reserve and the markets — at least from a psychological standpoint.

SPTL has declined by nearly 40% due to rising treasury yields and inflation. SPTL's sensitivity to rate changes caused a 41% decline, but easing inflation and weakening economy may lead to a rebound. The lower rate environment and potential economic recession make it a good time to own SPTL, with potential price returns of over 20%.

Investors took refuge in short-term Treasury bonds throughout 2023, where they reaped the rewards of higher-yielding money markets. Meanwhile, longer duration Treasuries have been mired in a bear market since 2020 but could finally start to see a reversal of fortune.