What is the Treasury ETF strategy?
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.
A Treasury ETF is a type of exchange-traded fund that seeks to track a benchmark index of U.S. Treasury securities, which are debt instruments issued by the U.S. Department of the Treasury to raise funds for government operations and various projects.
They are still subject to interest rate risk, inflation risk and the potential for changes in market conditions that can impact the value of the underlying bonds and the ETF itself.
For many people, TreasuryDirect is a good option; however, retirement savers and investors who already have brokerage accounts are often better off buying bonds on the secondary market or with exchange-traded funds (ETFs).
About US Treasury 3 Month Bill ETF
The index is comprised of a single issue purchased at the beginning of the month and held for a full month. Low commission rates start at $0 for U.S. listed stocks & ETFs*. Margin loan rates from 5.83% to 6.83%.
Treasury ETFs are also valued for how they diversify investment portfolios. Given their historically low correlation with stocks and other asset classes, they can serve as a hedge against market volatility or economic downturns. This makes them attractive for lowering the overall risk of a portfolio.
Treasury ETFs are an attractive way to gain exposure to swaths of high-quality government debt. Short-term yields are high, making CLIP's 5.5% yield to maturity the highest among these options. The best Treasury ETF to buy depends on your economic outlook and comfort with interest rate risk.
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.
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. If you're interested in investing in Treasury bonds or have other questions about your portfolio, consider speaking with a financial advisor.
The largest Treasury ETF is the iShares 20+ Year Treasury Bond ETF TLT with $47.15B in assets. In the last trailing year, the best-performing Treasury ETF was TMV at 50.10%. The most recent ETF launched in the Treasury space was the Innovator Premium Income 15 Buffer ETF - April LAPR on 04/01/24.
Can you lose money investing in US Treasuries?
The No. 1 advantage that T-bills offer relative to other investments is the fact that there's virtually zero risk that you'll lose your initial investment. The government backs these securities so there's much less need to worry that you could lose money in the deal compared to other investments.
The iShares 0-3 Month Treasury Bond ETF seeks to track the investment results of an index composed of U.S. Treasury bonds with remaining maturities less than or equal to three months.
| Symbol Symbol | ETF Name ETF Name | Annual Dividend Yield % Annual Dividend Yield % |
|---|---|---|
| TLT | iShares 20+ Year Treasury Bond ETF | 3.89% |
| BIL | SPDR Bloomberg 1-3 Month T-Bill ETF | 5.13% |
| IEF | iShares 7-10 Year Treasury Bond ETF | 3.45% |
| VGIT | Vanguard Intermediate-Term Treasury ETF | 3.05% |
Also available as an Admiral™ Shares mutual fund.
The Global X 1-3 Month T-Bill ETF (CLIP) invests in a basket of Treasury bills issued by the U.S. government that have a remaining maturity of at least 1 month but less than 3 months.
US Treasury 2 Year Note ETF (UTWO)
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.
Do Bond ETFs Pay Interest or Dividends to Shareholders? Bond ETFs pay dividends on a monthly basis based on the interest income earned on the bonds held in the fund's portfolio.
U.S. Government Bond ETFs: Exempt from State Taxes
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.
For instance, some ETFs may come with fees, others might stray from the value of the underlying asset, ETFs are not always optimized for taxes, and of course — like any investment — ETFs also come with risk.
Is it better to invest in bonds or ETFs?
For many investors, investing in the right bond funds can be a better option than holding a portfolio of individual bonds. Bond ETFs can provide better diversification — often for a lower cost — can offer higher liquidity, and can be easier to implement.
- Vanguard Total World Bond ETF (BNDW)
- Vanguard Core-Plus Bond ETF (VPLS)
- DoubleLine Commercial Real Estate ETF (DCRE)
- Global X 1-3 Month T-Bill ETF (CLIP)
- SPDR Portfolio Corporate Bond ETF (SPBO)
- JPMorgan Ultra-Short Income ETF (JPST)
- iShares 7-10 Year Treasury Bond ETF (IEF)
- iShares 10-20 Year Treasury Bond ETF (TLH)
The iShares $ Treasury Bond 0-1 yr UCITS ETF seeks to track the investment results of an index composed of US Dollar denominated government bonds issued by the US Treasury, with remaining maturities between zero and one year.
Treasury bonds mature in 20 or 30 years and pay interest every six months. When you purchase a Treasury bond, you are loaning money to the U.S. federal government. Treasury bonds are a low-risk investment that pays a fixed return and offers tax advantages.
| Ticker | Fund | 1-Mo Return |
|---|---|---|
| BLV | Vanguard Long-Term Bond ETF | 9.98% |
| ZROZ | PIMCO 25+ Year Zero Coupon US Treasury ETF | 16.02% |
| VCIT | Vanguard Intermediate-Term Corporate Bond ETF | 5.95% |
| IEF | iShares 7-10 Year Treasury Bond ETF | 4.55% |
