Barron's Likes Short Treasury ETFs
This weekend's Barron's tells investors to favor long-term Treasury bills over money market funds. The article, "Look What the Fed Did to the Bond Market This Week," tells us, "The Federal Reserve may get around to raising its short-term interest rate target later this year, but short-term bond yields already reflect that eventuality. Investors and savers can boost their yields without adding much risk by shifting out of money-market funds. But to what, exactly? Extending to longer-term securities adds significant risks without commensurate returns.... Still, there are some bargains to be had—namely among shorter-term Treasuries." It explains, "Given the futures market's forecast—which is probably the best guide, given Warsh has eschewed forward guidance -- the two-year Treasury at about 4.25% already reflects the likelihood of two Fed hikes later this year and early 2027. That yield also represents a meaningful pickup from the three-month Treasury bill, at 3.75%, and money-market funds such as the Fidelity Government Money Market fund, with a seven-day SEC yield of 3.32%." The Barron's piece adds, "A number of low-cost exchange-traded funds cover the one-to-three-year corner of the Treasury market. Among the largest are Vanguard Short-Term Treasury, iShares 1-3 Year Treasury Bond, Schwab Short-Term Treasury, and State Street SPDR Portfolio Short Term Treasury. They sport ultralow expense ratios of three basis points (0.03%), except the iShares ETF, which charges 15 basis points. At the same time, shorter-term bonds provide nearly as much yield as lengthier maturities, and with significantly lower risk from rising interest rates. (Bond prices move inversely to interest rates.) A recent report from Janus Henderson shows the U.S. Treasury 1-3 Year index (the benchmark of the aforementioned ETFs) has a duration of about two years, compared with about six years for the U.S. Aggregate Index. (Duration is a measure of a bond’s price sensitivity to interest rate changes.)"
