To The Moon

With the probability of a Fed rate cut in September nearing 100%, inflows into $iShares 20+ Year Treasury Bond ETF(TLT)$, the largest ETF tied to US Treasury bonds, have surged again.

1. Why Does TLT Rise and When Is the Best Time to Buy?

TLT holds a basket of U.S. Treasury bonds with maturities exceeding 20 years, and its price fluctuations are influenced by benchmark interest rate. As interest rates decrease, the prices of the bonds in its portfolio tend to rise.

• Note: Bond prices and bond yields are inversely related; when bond prices rise, bond yields fall.

The price of long-term Treasury bond ETFs is more sensitive to interest rate changes than short-term Treasury ETFs. Therefore, timing is crucial when buying TLT. Over the past three years, buying TLT may result in losses.

As shown in the chart, in 2020, when Fed lowered interest rates to near zero, TLT peaked. However, even before the first rate hike in 2022, TLT had already dropped significantly due to the market's high sensitivity. Since July, driven by increased expectations of rate cuts, TLT has rebounded by nearly 6%.

TLT Performance from 2019 to Present

2. How to Estimate TLT’s Growth After a Rate Cut?

To measure a bond ETF’s interest rate sensitivity, investors can multiply the average duration of the ETF’s bond holdings by the expected change in interest rates.

For example, iShare's website indicates that TLT’s standard duration is about 16.65%. A 100-basis point decline in rates would translate into a 16% gain in price for TLT. Conversely, a 100-basis point increase in rates would translate into a 16% decline in price, which helps to explain the massive losses in TLT as rates increased at a record pace.

This is why TLT fell a lot during the last round of rate hikes, when interest rates rose at a record pace.

iShare TLT Investment Information

The market currently expects a 42.6% probability of Fed cutting rates by 100 basis points by December 2024. Although TLT has already priced in some of this expected gain, there is still room for further growth.

CME FedWatch Tool: Rate Expectations

3. TLT Provides High Dividends Monthly and Refunds Dividend Tax?

TLT offers stable dividend monthly, currently 12m trailing yield as high as 3.72%, which is distributed to investors' accounts on the first day of each month.

iShare TLT Investment Information

It's commonly known that dividends are subject to dividend tax. However, the dividend tax for TLT can be refunded. The dividend tax paid on U.S. Treasury ETFs will be refunded to the investor's account between February and April of the following year.

The U.S. imposes a 30% tax on cash dividends from U.S. companies. However, certain countries or regions have tax treaties with the U.S. that provide for reduced withholding tax rates, such as 10% for Mainland China (with a W8Ben tax exemption form) and 15% for Australia and New Zealand, among others. It's important to note that Tiger Singapore users have a dividend tax rate of 30%.

The dividend tax is initially withheld by the broker when dividends are paid, known as withholding tax.

The taxation of ETFs depends on the assets they hold. U.S. Treasuries are exempt from state and local taxes, so $iShares 20+ Year Treasury Bond ETF(TLT)$, which holds U.S. Treasury bonds as underlying assets, is also exempt from state and local income taxes on its dividends.

During the tax refund season in the second year, Tiger Trade will fully or partially refund the withheld tax from the previous year (depending on the policies of the issuer and upstream institutions).

4. When Will Investors Receive Refund Dividend Tax From TLT? How Much Tax Is Refunded?

• TLT Tax Refund Timing: Generally, the tax refund season is between February and April of the following year.

Tiger Trade will calculate and refund the appropriate tax amount to investors' accounts based on documents from upstream institutions.

If you held TLT stock in the previous year, you should check your spring statement.

It's important to note that the exact refund date may vary depending on the actual processing schedule of upstream institutions.

• TLT Tax Refund Amount: Full refund.

Suppose you paid 1000 dollars in dividend tax last year; this amount will be fully refunded the next year. For example, if you are a Singaporean citizen, the 30% dividend tax will be refunded.

Investors can check the withholding tax and refund through their fund details or statements. Tiger statement will display "Withholding Tax," where "-" indicates withholding, and "+" indicates a refund.

Tax Refund Query Path on Tiger Trade App

You can find your actual dividend and refund under Portfolio - More - Funds - Fund Details - Fee and Interests

You can also check the withholding tax and refund status through Account - Statements.