⏱ 2 min read
The PIMCO ETF is a pure play on long-dated Treasury rates, and Protos reports its price has been crushed by higher yields at the 25–30‑year end of the curve.
PIMCO’s ZROZ closed at an all-time low of $53.73, part of a steep multi-year slide for the long-duration Treasury ETF, Protos reported. According to Protos, the fund is down 16% year to date, 21% over the past 12 months, 63% over five years, and 73% from its March 2020 peak.
Protos describes ZROZ as a NYSE-listed fund that passively tracks a U.S. Treasury Principal STRIPS index focused on 25–30 year maturities. Principal-only STRIPS pay no coupons and return a single cash flow at maturity, so their price is the present value of that distant payment.
That structure makes ZROZ acutely sensitive to moves in long-dated yields: when the 25–30 year Treasury yield rises, the discount rate applied to that single future payment rises, and the present value falls—often sharply. Protos cites today’s environment as one where 30-year Treasuries pay about 5.64% annually, a level that also makes coupon-paying bonds more attractive than principal-only exposures.
The selloff is not about credit. Protos notes the U.S. government hasn’t defaulted on sovereign bonds since 1933, aside from a technical delay in 1979. The fund’s decline instead mirrors the rate-driven repricing of its underlying index; Protos emphasizes this is not an active management issue.
The drawdown has been severe for long-term holders. Protos reports that, excluding dividends, every buyer since ZROZ’s 2009 inception is under water; even including the fund’s small distributions, only investors who bought before September 2011 would be positive.
The recovery math is demanding. From a 73% decline, it would take roughly a 270% gain to reclaim the prior peak—simply the arithmetic of bouncing back from a deep drawdown.
What to watch next
The key drivers now sit at the long end of the curve: the path of the 30-year Treasury yield, how the curve’s long maturities reprice relative to the front end, and investor demand for duration-heavy ETFs. A decisive turn lower in long yields would lift the present value of principal-only cash flows; without it, rate sensitivity will continue to dominate ZROZ’s returns.
This content is for informational purposes only and does not constitute financial advice.
🧠 HafidWatch Take
Given the steep decline and the math behind recovering from a 73% drop, ZROZ investors face a steep uphill path unless long-term yields fall sharply. However, convexity means that if yields move unpredictably—either surging further or dropping suddenly—the fund’s price could react in ways that aren’t linear or intuitive. This adds a layer of risk beyond simple yield changes, making it essential for investors to consider how extreme moves in long yields may disproportionately impact returns over time.
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