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ZROZ is in freefall. PIMCO’s exchange-traded fund tied to long-dated US Treasury principal repayments just hit a record low of $53.73, down 16% this year alone and a brutal 73% off its March 2020 peak.
Why It Matters
The significant decline of PIMCO’s ZROZ ETF highlights the broader challenges faced by long-duration bonds in a rising interest rate environment, as investors grapple with the implications of sustained inflation and tighter monetary policy. This trend may lead to a reevaluation of risk in fixed income investments, prompting shifts in portfolio strategies as market participants seek to mitigate losses and adapt to changing economic conditions. Additionally, the steep drop in ZROZ serves as a cautionary tale for investors regarding the volatility and risks associated with long-dated securities.
That peak price was above $202 per share. Think about that for a second — investors who bought near the top and held have watched nearly three-quarters of their money evaporate. The fund trades on the New York Stock Exchange and has been around since 2009, but its track record is pretty much a straight line down when you strip out dividends. Even with dividends counted in, you’d have needed to buy shares before September 2011 to be sitting on any kind of gain today. Anyone who came in after that? Still underwater.
What ZROZ Actually Tracks
The fund follows US Treasury Principal STRIPS — zero-coupon instruments with maturities of 25 to 30 years. STRIPS don’t pay interest along the way. Their value comes entirely from the present value of a single lump-sum principal payment at maturity. When interest rates were near rock bottom, that future payment was worth a lot in today’s dollars. So ZROZ shares were expensive. Makes sense.
But rates moved. Hard. Treasury bonds are now paying 5.64% annually, and suddenly that distant lump-sum payment looks a lot less appealing when you can grab a regular coupon bond and collect income every six months. Investors have been walking away from STRIPS pretty steadily, and the ETF’s price has followed.
It’s not a management failure, to be clear. PIMCO isn’t making bad calls here. The fund is passive — it just tracks the underlying index. When the index falls, ZROZ falls. There’s no active strategy to pivot, no manager stepping in to rotate into something better. The structure locks it in.
The Fee and Dividend Math Doesn’t Help
ZROZ charges a management fee of 0.15% and has paid just $3.25 per share in dividends over the past 12 months. For a fund sitting at $53.73, that’s a thin yield. Compare that to a standard Treasury bond yielding 5.64% and the math gets uncomfortable fast. Investors looking for income have basically no reason to stay.
The fund’s prospectus is also pretty blunt about one thing — ZROZ is not insured or guaranteed by any government agency, including the Federal Deposit Insurance Corporation. The US government does back the underlying Treasury principal repayments themselves, but the fund as a product? No safety net. Investors carry the full weight of price risk, and right now that risk is very real.
It was designed as a hedging tool. Bond traders use it to isolate the value of long-term principal repayments, separating that from interest rate income. For that narrow purpose, ZROZ still does what it’s supposed to do. But as a standalone investment? Its appeal has shrunk considerably.
Who’s Still Holding and Why
There’s a specific type of trader who wants exactly what ZROZ offers — pure exposure to the present value of far-future Treasury principal, nothing else attached. Pension funds, duration-matching strategies, sophisticated fixed-income desks. They’re not buying ZROZ because they think rates are going down next quarter. They’re using it to hedge long-term liability profiles.
But that’s a narrow audience. And even within that group, the sustained losses probably make internal conversations harder. When a hedging instrument drops 73% from its peak, someone in a risk committee is going to ask questions.
The broader investor base has clearly moved on. Higher-yielding assets are everywhere right now — regular Treasury bonds, corporate debt, money market funds all offering more immediate returns. ZROZ can’t compete on income. It can’t compete on price appreciation in the current rate environment. And it can’t lean on a government guarantee of the fund itself to calm nervous investors.
The AA-rated assets inside the fund are solid from a credit standpoint. Nobody’s worried about the US government defaulting on those principal payments. The problem isn’t credit risk. It’s duration risk and opportunity cost — being locked into an instrument that pays nothing until maturity while the rest of the fixed-income market hands out 5%-plus yields annually.
So the fund keeps sliding. Sixteen percent down this year. Seventy-three percent from the peak. A management fee of 0.15% and $3.25 in annual dividends per share. Record low at $53.73.
Frequently Asked Questions
What is ZROZ and why has it fallen so sharply?
ZROZ is a PIMCO ETF that tracks US Treasury Principal STRIPS with 25-to-30-year maturities. It has dropped 73% from its March 2020 peak and hit a record low of $53.73 because rising interest rates reduce the present value of those distant lump-sum payments.
Does the US government guarantee ZROZ against losses?
No. While the underlying Treasury principal repayments carry US government backing, ZROZ itself is not insured or guaranteed by any government agency, including the FDIC, per its own prospectus.
