The US Department of Treasury issues bonds, notes, and bills to fund government operations. These are mostly fixed-income securities that generate interest over a maturation period, which can be anywhere from 7 days to 30 years. These interest rates are often referred to as the “risk free rate”, as Treasuries are backed by the full faith of the government. Longer-dated bonds tend to have higher interest rates, as they require cash to be locked up for the longest time.

The ETFs in this universe contain bonds of varying lengths and interest rates. Regardless of maturity, they are all largely influenced by the same factors macroeconomic factors. Federal Reserve interest rate plays a particularly large role in how they are priced, with long-dated bonds experiencing larger reactions.

Zero-coupon Treasuries, contained in the EDV ETF, have an important distinction: they don’t produce any interest. Instead, they are offered at a steep discount to face value and can be redeemed in full at maturity. This important distinction causes them to be uniquely sensitive to changes in interest rates.