TLT - Why Is Income from Govt Obligations so LOW?
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TLT - Why Is Income from Govt Obligations so LOW?
I've been working on my taxes and recently received my 1099 for TLT (I hold some in a taxable account because I have very little tax-deferred space). I notice that the iShares tax information sheet shows that ONLY 62.89% of income is derived from U.S. Government Obligations (and therefore shielded from state tax in most states). IEF and IEI (medium term bonds) are even lower -- close to 50%.
Anybody know how or why such a small percentage of income from these funds is derived from U.S. Government Obligations? I would expect it to be closer to, say, 100%.
Anybody know how or why such a small percentage of income from these funds is derived from U.S. Government Obligations? I would expect it to be closer to, say, 100%.
Re: TLT - Why Is Income from Govt Obligations so LOW?
I assume the rest would be from capital gains, right?
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Re: TLT - Why Is Income from Govt Obligations so LOW?
No, I'm not talking about my personal interest/gains. I'm talking about the actual iShares 2011 tax information sheet that shows the percentage of income derived from U.S. Government Obligations.MediumTex wrote: I assume the rest would be from capital gains, right?
Here's Vanguard's: http://www.vanguard.com/pdf/usgo_2011.p ... omain=true. Notice that the Long-term Government Bond Index is 94%.
Here's iShares: http://us.ishares.com/content/stream.js ... cation/pdf. Notice IEI, IEF around 50%, and TLT slightly higher.
Does that make my question more clear? I don't think it has anything to do with capital gains.
The impact of this is that if a person receives, say, $10,000 in interest payments in 2011 from TLT, only $6,289 of it (not the full $10,000) is deductible from state taxes. Compare to Vanguard, for example, where 94% is derived from Government Obligations... $9,400 of that $10,000 would be deductible from state taxes.
Last edited by chrikenn on Sat Feb 25, 2012 5:12 pm, edited 1 time in total.
Re: TLT - Why Is Income from Govt Obligations so LOW?
What I meant was the capital gains generated within the fund as it buys and sells bonds to maintain the appropriate bond duration.
If it's not capital gains within the fund, I have no idea where the other income would be coming from.
I don't know how you would get non-treasury dividends from a portfolio that is 100% treasury bonds.
If it's not capital gains within the fund, I have no idea where the other income would be coming from.
I don't know how you would get non-treasury dividends from a portfolio that is 100% treasury bonds.
Q: “Do you have funny shaped balloons?”
A: “Not unless round is funny.”
A: “Not unless round is funny.”
Re: TLT - Why Is Income from Govt Obligations so LOW?
Oh, ok. I guess that could be it. I don't think it is though, because I think those distributions would be classified as capital gains distributions rather than interest payments. Also, as it is they are only paying a couple % interest... if nearly half of that were attributable to capital gains, the interest rates would be really, really low.MediumTex wrote: What I meant was the capital gains generated within the fund as it buys and sells bonds to maintain the appropriate bond duration.
If it's not capital gains within the fund, I have no idea where the other income would be coming from.
I don't know how you would get non-treasury dividends from a portfolio that is 100% treasury bonds.
Re: TLT - Why Is Income from Govt Obligations so LOW?
Income from loaning the bonds it holds?
Re: TLT - Why Is Income from Govt Obligations so LOW?
Yes, TLT's prospectus says they may lend out up to 1/3 of the fund's total assets. Maybe the fund is deriving a lot of income from that.
Re: TLT - Why Is Income from Govt Obligations so LOW?
Hopefully someone will come up with something definitive on this question.Tortoise wrote: Yes, TLT's prospectus says they may lend out up to 1/3 of the fund's total assets. Maybe the fund is deriving a lot of income from that.
Q: “Do you have funny shaped balloons?”
A: “Not unless round is funny.”
A: “Not unless round is funny.”
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Re: TLT - Why Is Income from Govt Obligations so LOW?
This is potentially very distressing
I use SHY and TLT in my HSA account to avoid California Income Taxes on the HSA income. If the returns from the funds are not substantially from U.S. Treasuries then that fraction of income may be taxable.
Yet another counter party risk.
I use SHY and TLT in my HSA account to avoid California Income Taxes on the HSA income. If the returns from the funds are not substantially from U.S. Treasuries then that fraction of income may be taxable.
Yet another counter party risk.
It is the settled policy of America, that as peace is better than war, war is better than tribute. The United States, while they wish for war with no nation, will buy peace with none" James Madison
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Re: TLT - Why Is Income from Govt Obligations so LOW?
I'm surprised this information has not raised a s***storm here.
Where is the other income for TLT, SHY, et al. coming from? Once again, this raises the issue of counterparty risk in mutual funds.
If the substantial additional income in these funds is derived from non-treasury-bond-interest-payment sources, TLT and SHY do not appear to be suitable for use in an HBPP.
Where is the other income for TLT, SHY, et al. coming from? Once again, this raises the issue of counterparty risk in mutual funds.
If the substantial additional income in these funds is derived from non-treasury-bond-interest-payment sources, TLT and SHY do not appear to be suitable for use in an HBPP.
It is the settled policy of America, that as peace is better than war, war is better than tribute. The United States, while they wish for war with no nation, will buy peace with none" James Madison
Re: TLT - Why Is Income from Govt Obligations so LOW?
WAH,
I agree... Put me in the camp that's lazily waiting for someone with more gung-ho to figure this out.
And I was pissed a few months back when we found out they could lend these funds.
I suppose as a tax accountant I should be the one to spearhead this b!tch.
I agree... Put me in the camp that's lazily waiting for someone with more gung-ho to figure this out.
And I was pissed a few months back when we found out they could lend these funds.
I suppose as a tax accountant I should be the one to spearhead this b!tch.
"Men did not make the earth. It is the value of the improvements only, and not the earth itself, that is individual property. Every proprietor owes to the community a ground rent for the land which he holds."
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Re: TLT - Why Is Income from Govt Obligations so LOW?
By all means!moda0306 wrote:I suppose as a tax accountant I should be the one to spearhead this b!tch.
It is the settled policy of America, that as peace is better than war, war is better than tribute. The United States, while they wish for war with no nation, will buy peace with none" James Madison
Re: TLT - Why Is Income from Govt Obligations so LOW?
Ready for a PP sh!tstorm?
http://quote.morningstar.com/fund-filin ... ffc3b9e09c
Go to page 36 of this attachment and pay attention, under the “assets”? section to the 3rd column, on the line that says “Investments in securities, at fair value (including securities on loan).
That FMV of the assets in the fund comes to about $3.9 Billion.
So then go down to the (a) note, and it will tell you what the iShares 20+ Year fund’s share of securities on loan is, and (wait for it)…
$1.07 Billion. That’s right, about ¼ of the securities are on loan. So you’re not borrowing that portion to the government… you’re borrowing them to a private leveraging operation.
How do you like that?
Then on page 39 they show the income… which is a little harder to track and securities lending income is not that high.
This is all “year ended February 28, 2011”? by the way, so things could have changed, but this at-least gives you a pretty good idea of what TLT is: A wall street machination that pays 3% interest for 30 years and holds a decent chunk of similar instruments from the US treasury.
I’ll also add that it appears that there is another counterparty involved even in collecting the treasury interest.
At this point I'd still call i-shares, but it'll probably take forever to get to an answer
http://quote.morningstar.com/fund-filin ... ffc3b9e09c
Go to page 36 of this attachment and pay attention, under the “assets”? section to the 3rd column, on the line that says “Investments in securities, at fair value (including securities on loan).
That FMV of the assets in the fund comes to about $3.9 Billion.
So then go down to the (a) note, and it will tell you what the iShares 20+ Year fund’s share of securities on loan is, and (wait for it)…
$1.07 Billion. That’s right, about ¼ of the securities are on loan. So you’re not borrowing that portion to the government… you’re borrowing them to a private leveraging operation.
How do you like that?
Then on page 39 they show the income… which is a little harder to track and securities lending income is not that high.
This is all “year ended February 28, 2011”? by the way, so things could have changed, but this at-least gives you a pretty good idea of what TLT is: A wall street machination that pays 3% interest for 30 years and holds a decent chunk of similar instruments from the US treasury.
I’ll also add that it appears that there is another counterparty involved even in collecting the treasury interest.
At this point I'd still call i-shares, but it'll probably take forever to get to an answer
"Men did not make the earth. It is the value of the improvements only, and not the earth itself, that is individual property. Every proprietor owes to the community a ground rent for the land which he holds."
- Thomas Paine
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Re: TLT - Why Is Income from Govt Obligations so LOW?
I'm still awaiting more info on this, but meanwhile I'm feeling pretty good about my emphasis on EDV for the bond portion of PP.
At least with the gold portion I can buy coins (or bars) and bury them in the backyard, but in light of MF Global I'm really concerned about all the counterparty risk with stocks and bonds.
At least with the gold portion I can buy coins (or bars) and bury them in the backyard, but in light of MF Global I'm really concerned about all the counterparty risk with stocks and bonds.
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Re: TLT - Why Is Income from Govt Obligations so LOW?
I guess moda has covered it, but I wrote to iShares when I first saw this thread.
The email reply just came in:
The email reply just came in:
Thanks for contacting us about iShares ETFs. The reason you are seeing these numbers is because of securities lending activities within the fund. However we will not lend securities unless it was net benefit to the shareholder.
If you have any questions regarding this inquiry, please contact us at 1-800-iShares (1-800-474-2737) Monday through Friday, 8:30 a.m. to 6:30 p.m. (EST) and we will be happy to assist you. Thank you again for contacting iShares and have a great day!
Re: TLT - Why Is Income from Govt Obligations so LOW?
dualstow,
50% securities lending income, though? That seems incredibly high. I don't understand their claim about it being "to the benefit of the shareholder."
People don't invest in treasury bond funds only to have those bonds lent out out to other entities for money on the side. Even if we did, shouldn't we have some considerably higher returns in the fund then the bonds themselves could have given us (by "considerably," I mean 1-3%?). I'm sorry but I don't want HALF of my bonds used in some Wall Street scheme for only .5% interest at the end of the year.
Their line of thinking is beyond me, and it's starting to appear to be a lot less thinking and a lot more profiteering. I'm not seeing the benefit come through that one would assume given a leveraging of 25% to 50% of the assets you are holding.
50% securities lending income, though? That seems incredibly high. I don't understand their claim about it being "to the benefit of the shareholder."
People don't invest in treasury bond funds only to have those bonds lent out out to other entities for money on the side. Even if we did, shouldn't we have some considerably higher returns in the fund then the bonds themselves could have given us (by "considerably," I mean 1-3%?). I'm sorry but I don't want HALF of my bonds used in some Wall Street scheme for only .5% interest at the end of the year.
Their line of thinking is beyond me, and it's starting to appear to be a lot less thinking and a lot more profiteering. I'm not seeing the benefit come through that one would assume given a leveraging of 25% to 50% of the assets you are holding.
"Men did not make the earth. It is the value of the improvements only, and not the earth itself, that is individual property. Every proprietor owes to the community a ground rent for the land which he holds."
- Thomas Paine
- Thomas Paine
Re: TLT - Why Is Income from Govt Obligations so LOW?
I don't see any point at all in treasury etfs unless you live in a country where the minimum holding for the bonds is too large for your use. In the UK we can own UK treasuries in as small increments as etfs so it seems bonkers to own a UK gilt etf especially as the UK gilt etfs have 50% of the securities lent out.
"Good judgment comes from experience. Experience comes from bad judgment." - Mulla Nasrudin
Re: TLT - Why Is Income from Govt Obligations so LOW?
stone,
It'd be one thing if one could get something with one layer of Vanguardesque counterparty risk, but these Wall Street machinations seem like a joke to me.
You are LITERALLY loaning your wealth to private companies, but getting paid as if you were loaning your money to the government.
W.T.F.
It'd be one thing if one could get something with one layer of Vanguardesque counterparty risk, but these Wall Street machinations seem like a joke to me.
You are LITERALLY loaning your wealth to private companies, but getting paid as if you were loaning your money to the government.
W.T.F.
"Men did not make the earth. It is the value of the improvements only, and not the earth itself, that is individual property. Every proprietor owes to the community a ground rent for the land which he holds."
- Thomas Paine
- Thomas Paine
Re: TLT - Why Is Income from Govt Obligations so LOW?
moda you are not just loaning to any private company, you are loaning to hedgefunds shorting treasuries. They presumably include go-for-broke "break the fed" bond vigilante types. They regularly impale themselves on their own ignorance. I wouldn't want to be depending on them for anything.
"Good judgment comes from experience. Experience comes from bad judgment." - Mulla Nasrudin
Re: TLT - Why Is Income from Govt Obligations so LOW?
Exactly!!!stone wrote: moda you are not just loaning to any private company, you are loaning to hedgefunds shorting treasuries. They presumably include go-for-broke "break the fed" bond vigilante types. They regularly impale themselves on their own ignorance. I wouldn't want to be depending on them for anything.
Your goal: Own US Treasuries
In effect what your doing: Borrowing your wealth to private companies SHORTING treasuries and hope they pay you back what the treasuries would have via the terms of a contract.
I'm at a loss for words.
"Men did not make the earth. It is the value of the improvements only, and not the earth itself, that is individual property. Every proprietor owes to the community a ground rent for the land which he holds."
- Thomas Paine
- Thomas Paine
Re: TLT - Why Is Income from Govt Obligations so LOW?
I sometimes wonder whether it is as much about control as about actually getting income directly from the lending. The lending means that retail buying of TLT or whatever does not move the market. To move the market people have to buy bonds. Shorts get squeezed if lots of people buy bonds or stocks directly etc etc. I don't know to what extent Blackrock is connected with any major market participants anymore. Perhaps the amount invested in TLT is far too tiny to move the LTT market anyway
"Good judgment comes from experience. Experience comes from bad judgment." - Mulla Nasrudin
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Re: TLT - Why Is Income from Govt Obligations so LOW?
moda, I have no argument with anything you wrote at the top of the page.
Over the past half year, I moved mostly out of TLT and into the real stuff, held in Fidelity.
I might have to complete that move this quarter.
But...I just set my dad up with pp that holds all its bonds in TLT. It's a small pp compared to the total picture, but still.
Over the past half year, I moved mostly out of TLT and into the real stuff, held in Fidelity.
I might have to complete that move this quarter.
But...I just set my dad up with pp that holds all its bonds in TLT. It's a small pp compared to the total picture, but still.
Re: TLT - Why Is Income from Govt Obligations so LOW?
dualstow, it probably still is fairly safe compared to pretty much everything else.
"Good judgment comes from experience. Experience comes from bad judgment." - Mulla Nasrudin
Re: TLT - Why Is Income from Govt Obligations so LOW?
dualstow,
Yeah if it sounded like I was lecturing you or trying to make a point against anything you said I wasn't... just typing in frustrated confusion.
Yeah if it sounded like I was lecturing you or trying to make a point against anything you said I wasn't... just typing in frustrated confusion.
"Men did not make the earth. It is the value of the improvements only, and not the earth itself, that is individual property. Every proprietor owes to the community a ground rent for the land which he holds."
- Thomas Paine
- Thomas Paine
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Re: TLT - Why Is Income from Govt Obligations so LOW?
Yeah, but now I have to decide whether or not to talk to him about it. If I don't bring it up, TLT is sure to blow up someday. I'll just tell him and wait for him to say he doesn't care. I'm sure there are a few investors here who have 100% in TLT.stone wrote:dualstow, it probably still is fairly safe compared to pretty much everything else.
Oh, you didn't sound like you were lecturing. When I said "I have no argument" I could as easily have written, "I agree!"moda0306 wrote: dualstow,
Yeah if it sounded like I was lecturing you or trying to make a point against anything you said I wasn't... just typing in frustrated confusion.