iShares 25 Year Treasury STRIPS Bond ETF (GOVZ)

The iShares 25 Year Treasury STRIPS Bond ETF (GOVZ) bundles zero-coupon US Treasury securities with maturities around 25 years into a tradeable fund—allowing investors to own stripped Treasuries without the usual minimum-purchase barriers and with daily liquidity.

What exactly are Treasury STRIPS?

STRIPS stands for Separate Trading of Registered Interest and Principal of Securities. The US Treasury issues regular coupon-bearing bonds, but financial institutions can strip these bonds apart into their component cash flows. A 25-year Treasury bond that pays interest twice yearly becomes a series of separate securities—one for each future coupon payment and one for the final principal. GOVZ holds these zero-coupon pieces, particularly the long-dated ones. You buy the fund at a deep discount to face value; it pays no income along the way; and at maturity you receive the full par amount. The discount itself is the return.

Why use STRIPS instead of regular Treasuries?

Regular Treasury bonds pay coupons semi-annually, so your actual return depends on reinvestment rates you cannot know in advance. STRIPS eliminate that uncertainty. You lock in a fixed return at purchase—the difference between what you pay and what you get at maturity. For investors who want a predictable future sum with no reinvestment decisions, STRIPS are cleaner. For institutions matching future liabilities—pension funds planning payouts 25 years hence—STRIPS are essential. GOVZ gives retail investors access to that tool without the hassle of buying STRIPS in the Treasury market, where minimums are high and bid-ask spreads can be wide.

How does duration amplify the risk?

A 25-year zero-coupon bond has extraordinary duration—roughly its maturity. That means a 1 percent move in interest rates can swing the fund’s value by 20-25 percent or more. If rates rise, the discount on future principal grows larger, and the bond’s market price falls sharply. If rates fall, the opposite happens. This extreme sensitivity is the reason GOVZ exists: investors who believe rates will fall can amplify that bet, turning a conviction about the interest-rate path into leveraged exposure. But it also means GOVZ is volatile. A modest 100-basis-point rate rise can halve the fund’s value. That volatility is not leverage per se—GOVZ does not borrow—but it is the natural consequence of the instrument’s structure.

Which investors use GOVZ, and why?

Three types: First, yield-hungry investors who believe long-term rates will decline and want maximum price appreciation from that move. Second, portfolio managers using GOVZ as a tactical hedge—when they fear an equity drawdown paired with falling rates, GOVZ rises while stocks fall, providing offsetting returns. Third, institutions needing to match very long-dated liabilities (pension obligations, insurance reserves) where a known-return zero-coupon bond is more precise than rolling coupons forward. GOVZ is not for conservative, income-focused investors; regular Treasury bonds or bond funds deliver steadier results. GOVZ is for conviction players and liability-matching specialists.

What are the real costs and frictions?

GOVZ trades on US stock exchanges, so the fund itself is liquid and inexpensive to buy and sell. The expense ratio is minimal—typical of BlackRock’s iShares Treasury funds. But the fund is no free lunch. The bid-ask spread can be meaningful because GOVZ is thinner than core Treasury bond funds. More importantly, GOVZ’s own holdings—Treasury STRIPS—are instruments with limited onshore trading liquidity; the fund’s value can be volatile, and the fund’s ability to liquidate all its positions at any instant is not guaranteed in a panic. During a sharp rate move or market dislocation, spreads can widen materially.

Interest rates and GOVZ: the cyclical story

GOVZ thrives when long-term rates are falling or when fear drives investors toward ultra-long duration. After a recession, when central banks cut rates and investors flee risk, GOVZ has soared. During rapid tightening cycles—like 2022—the fund was punished, losing a third or more of its value as long rates climbed. The fund’s future hinges entirely on whether long-term Treasury yields will fall from where they stand. A 30-year spell of stable or rising rates is the nightmare scenario; steady economic growth with persistent inflation would be unkind to GOVZ holders.

How to research GOVZ before committing

Start with the fund’s factsheet and prospectus from BlackRock’s iShares website. Understand the specific maturities held—are they truly centered on 25 years, or is there a wider range? Compare GOVZ against other ultra-long Treasury funds; there are alternatives, and their expense ratios may differ. Model what happens to your portfolio if the 10-year Treasury yield rises or falls 1 percent; that sensitivity is the central question. If you are using GOVZ as a tactical bet on falling rates, verify that your conviction is sound; this is not a fund to drift into hoping for slow appreciation. Finally, remember that GOVZ is a volatility tool, not a substitute for stable fixed income. Position size accordingly.