Treasury exchange-traded funds (ETFs) enable investors to gain exposure to the U.S. government bond market through a stock-like instrument. Unlike individual bonds that are sold by bond brokers, bond ETFs trade on market exchanges. Treasury ETFs offer investors a way to gain passive, and often broad, exposure to U.S. Treasury bonds. They are composed of a basket of Treasury securities, typically with a focus on a particular maturity or range of maturities.
On Sept. 2, 2022, the 10-year Treasury yield was 3.20%, while it was 1.29% on Sept. 2 2021. Yields have risen, especially since early last year, amid global supply chain disruptions and as the economy continues to recover from the impact of the COVID-19 pandemic. The price of Treasury securities and their yield move in opposite directions, so rising yields mean falling prices and vice versa.
Key Takeaways
- Treasurys have slightly underperformed the broader market over the past year.
- Treasury exchange-traded funds (ETFs) with the best one-year trailing total returns are USFR, TFLO, and SGOV.
- The top holdings of the first two of these funds are floating rate bonds with varying maturity dates, and the top holding of the third is Treasury Bills.
There are 53 distinct U.S. Treasury ETFs that trade in the U.S., excluding inverse and leveraged ETFs as well as ETFs with less than $50 million inassets under management (AUM). Treasurys, as measured by the Bloomberg U.S. Treasury Index, have slightly underperformed the broader market, providing a total return of -11.3% over the past 12 months compared with the S&P 500’s total return of -11.0%, as of Sept. 1, 2022. The best-performing Treasury ETF, based on 1-year trailing total returns, is the WisdomTree Floating Rate Treasury Fund (USFR).
We examine the three best Treasury ETFs below. All numbers below are as of Sept. 1, 2022.
- Performance Over One-Year: 0.8%
- Expense Ratio: 0.15%
- Annual Dividend Yield: 0.03%
- Three-Month Average Daily Volume: 2,960,211
- Assets Under Management: $8.1 billion
- Inception Date: Feb. 4, 2014
- Issuer: WisdomTree
USFR seeks to track the Bloomberg U.S. Treasury Floating Rate Index, an index of U.S. floating rate Treasury bonds. These floating rate bonds have interest payments that adjust to short-term moves in interest rates. They are priced at a spread over 3-month Treasury Bills. For this reason, USFR can be a good option for investors looking for stability and risk management in a time of interest rate changes. The top holdings of USFR include floating rate bonds with maturities including in Oct. 2023, Jan. 2024, and April 2024.
- Performance Over One-Year: 0.6%
- Expense Ratio: 0.15%
- Annual Dividend Yield: 0.02%
- Three-Month Average Daily Volume: 680,978
- Assets Under Management: $2.2 billion
- Inception Date: Feb. 3, 2014
- Issuer: BlackRock Financial Management
Like USFR above, TFLO tracks the Bloomberg U.S. Treasury Floating Rate Index, an index of U.S. floating rate Treasury bonds. It shares many of the same characteristics as USFR. The top three holdings of TFLO include floating rate bonds with maturities in Oct. 2022, July 2023, and Jan. 2023, respectively.
- Performance Over One-Year: 0.3%
- Expense Ratio: 0.05%
- Annual Dividend Yield: 0.04%
- Three-Month Average Daily Volume: 823,600
- Assets Under Management: $3.3 billion
- Inception Date: May 26, 2020
- Issuer: BlackRock Financial Management
SGOV targets the ICE 0-3 Month US Treasury Securities Index, an index of U.S. Treasury bonds with remaining maturities less than or equal to three months. The fund provides targeted access to a small segment of the Treasurys market and can be useful for investors seeking portfolio stability. The top holdings of SGOV include Treasury Bills with maturities on Sept. 6, Oct. 4, and Sept. 27 of this year.
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FAQs
Treasury ETFs have high credit quality and steady income, and they are relatively liquid. Treasury ETFs do have some risks, such as interest rate and market risks. You also don't hold Treasurys directly—considered the lowest-risk investments—but shares of the ETF.
Are treasury ETFs worth it? ›
Treasury ETFs have high credit quality and steady income, and they are relatively liquid. Treasury ETFs do have some risks, such as interest rate and market risks. You also don't hold Treasurys directly—considered the lowest-risk investments—but shares of the ETF.
What is the best treasury bond to buy right now? ›
9 of the Best Bond ETFs to Buy Now
| Bond ETF | Expense Ratio | Yield to maturity |
|---|
| iShares 0-3 Month Treasury Bond ETF (SGOV) | 0.07% | 5.4% |
| iShares Aaa - A Rated Corporate Bond ETF (QLTA) | 0.15% | 5.3% |
| SPDR Bloomberg High Yield Bond ETF (JNK) | 0.40% | 7.9% |
| Pimco Active Bond ETF (BOND) | 0.55% | 5.8% |
5 more rowsMay 7, 2024
Global X 1-3 Month T-Bill ETF (CLIP)
In fact, an accompanying rise in short-term rates can increase their yields significantly. In 2024, investors can earn 5% and upward with T-bills. To access T-bills in ETF form, Global X offers CLIP. With a 0.07% expense ratio, CLIP is one of the more affordable options available.
Is there a 5 year treasury ETF? ›
The BondBloxx Bloomberg Five Year Target Duration US Treasury ETF seeks to track the investment results of an index which contains U.S. Treasury securities that have an average duration of approximately 5 years.
Which Treasury ETF has the highest yield? ›
Higher Treasury Bond Yields
Thanks to the Federal Reserve's aggressive interest rate increases in 2022 and 2023, yields on U.S. Treasury bond funds have been at their highest levels in years. For example, the highest-yielding fund in our group, Vanguard Extended Duration Treasury ETF, is paying out 4.43%.
What is one downside to investing in Treasuries? ›
So, the risks to investing in T-bonds are opportunity risks. That is, the investor might have gotten a better return elsewhere, and only time will tell. The dangers lie in three areas: inflation, interest rate risk, and opportunity costs.
What is the downside to buying Treasury bonds? ›
These are U.S. government bonds that offer a unique combination of safety and steady income. But while they are lauded for their security and reliability, potential drawbacks such as interest rate risk, low returns and inflation risk must be carefully considered.
Why not to buy Treasury bonds? ›
Interest Rate Risk
Just as prices can rise in an economy, so too can interest rates. As a result, Treasury bonds are exposed to interest rate risk. If interest rates are rising in an economy, the existing T-bond and its fixed interest rate may underperform newly issued bonds, which would pay a higher interest rate.
Does Vanguard have a Treasury ETF? ›
Vanguard Short-Term Treasury ETF seeks to track the performance of a market-weighted Treasury bond index with a short-term dollar-weighted average maturity.
They are considered one of the safest investments because they are backed by the full faith and credit of the U.S. government. Short-term Treasury ETFs specifically focus on Treasuries with shorter durations, which means these securities typically have maturities ranging from a few months to a few years.
Do you pay taxes on Treasury ETFs? ›
Because U.S. Treasurys are tax-free at the state and local level, interest payments from sovereign bond ETFs that hold U.S. Treasurys are also exempt from state and local income taxes. They are subject to federal taxes, however. Interest payments from overseas bond ETFs are taxed as ordinary income.
Is there an ETF for 6 month Treasury bills? ›
US Treasury 6 Month Bill ETF XBIL:NASDAQ.
What ETF tracks treasury yields? ›
Treasuries ETF List
| Symbol Symbol | ETF Name ETF Name | Annual Dividend Yield % Annual Dividend Yield % |
|---|
| TLT | iShares 20+ Year Treasury Bond ETF | 3.86% |
| BIL | SPDR Bloomberg 1-3 Month T-Bill ETF | 5.18% |
| IEF | iShares 7-10 Year Treasury Bond ETF | 3.44% |
| VGIT | Vanguard Intermediate-Term Treasury ETF | 3.11% |
4 more rowsBest Performing ETFs Over the Last 10 Years
| | Ticker | 10-Year Performance |
|---|
| 1 | GBTC | 11,769% |
| 2 | SMH | 1045.4% |
| 3 | XLK | 549.2% |
| 4 | IXN | 480.1% |
1 more row3 days ago
Here are some examples of top 10-year Treasury ETFs, as measured by assets under management: iShares 7-10 Year Treasury Bond ETF (IEF) Vanguard Long-Term Treasury ETF (VGLT) Schwab Long-Term US Treasury ETF (SCHQ)
What are the risks of Treasury ETFs? ›
Short-term Treasury ETFs can still be subject to market risk, interest rate risk and inflation risk, even though these risks are relatively low.
Why invest in Treasury ETFs? ›
Treasury ETFs offer investors a way to gain passive, and often broad, exposure to U.S. Treasury bonds. They are composed of a basket of Treasury securities, typically with a focus on a particular maturity or range of maturities.
Is it worth investing in Treasuries? ›
Pros of Investing in Treasury Bonds
Dependable income: Treasury bonds provide fixed interest payments, known as coupon payments, twice a year. This predictable income is invaluable for financial planning, allowing investors to forecast their income and plan for future expenses.
