Treasury Futures: Are There Etfs Investing In Them?

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, bond ETFs trade on market exchanges. Treasury ETFs are a great way for risk-averse investors to diversify their portfolio. While investors can buy securities directly through TreasuryDirect.gov, some find the platform outdated and glitchy. Treasury ETFs offer a good alternative, providing regular monthly distributions but with expense ratios paid to their asset managers.

There are 53 distinct U.S. Treasury ETFs that trade in the U.S., excluding inverse and leveraged ETFs and those with less than $50 million in assets under management (AUM). The best-performing Treasury ETF, based on one-year trailing total returns, is the WisdomTree Floating Rate Treasury Fund (USFR).

- iShares 7-10 Year Treasury Bond ETF (IEF)

- Global X 1-3 Month T-Bill ETF (CLIP)

- iShares Short Treasury Bond ETF (SHV)

- SPDR Portfolio Intermediate Term Treasury ETF (SPTI)

- Vanguard Long-Term Treasury ETF (VGLT)

- iShares U.S. Treasury Bond ETF (GOVT)

- Vanguard Short-Term Inflation-Protected Securities ETF (VTIP)

- iShares 25+ Year Treasury Strips Bond ETF (GOVZ)

- Simplify Short Term Treasury Futures Strategy ETF (TUA)

- Simplify Intermediate Term Treasury Futures Strategy ETF (TYA)

Mutual funds' preference for Treasury futures

Mutual funds are professionally managed investment funds that typically invest in traditional asset classes like stocks and bonds. However, some mutual funds also utilize derivatives contracts such as options and futures. These funds fall under the category of 'specialty funds' and can be an excellent tool for investors looking to diversify their portfolios with options and futures for various companies' stocks and commodities.

Secondly, regulatory limitations on repo borrowing and the associated impact on expense ratios make Treasury futures a more attractive option for mutual funds. Repo borrowing can increase reported expense ratios, especially in high-interest-rate environments. In contrast, the implied leverage in Treasury futures enables mutual funds to leverage their capital without incurring explicit borrowing.

Additionally, the liquidity and ease of trading associated with Treasury futures make them a preferred choice for mutual funds. Treasury futures trade on centralized exchanges and have greater liquidity relative to cash Treasury securities, making adjustments to exposures more straightforward and less costly.

Furthermore, the ability to hedge and manage interest rate risk is another factor influencing mutual funds' preference for Treasury futures. Treasury futures allow funds to manage their interest rate exposure actively, particularly in a rising interest rate environment.

Lastly, the preference for Treasury futures may be driven by the funds' risk appetite and investment strategies. Mutual funds that engage in greater risk-taking tend to have higher cash holdings and more volatile investor flows, making Treasury futures a suitable instrument for increasing exposure to riskier assets.

In summary, mutual funds' preference for Treasury futures can be explained by their desire for leverage, regulatory constraints, liquidity considerations, interest rate risk management, and alignment with their investment strategies and risk appetite.

Treasury ETFs for risk-averse investors

Treasury ETFs are a great way for risk-averse investors to diversify their portfolios. Treasurys are perceived to be the safest securities available given their extremely low probability of default. They are backed by the full faith and credit of the U.S. Treasury Department.

While you can buy these securities directly through TreasuryDirect.gov, some find the platform outdated and glitchy. An alternative is to invest in Treasury bonds via an exchange-traded fund (ETF), which trades like a stock on exchanges and pools a collection of Treasurys. These funds offer regular monthly distributions but come with expense ratios paid to their asset managers.

• IShares 7-10 Year Treasury Bond ETF (IEF)
• Global X 1-3 Month T-Bill ETF (CLIP)
• IShares Short Treasury Bond ETF (SHV)
• SPDR Portfolio Intermediate Term Treasury ETF (SPTI)
• Vanguard Long-Term Treasury ETF (VGLT)
• IShares U.S. Treasury Bond ETF (GOVT)
• Vanguard Short-Term Inflation-Protected Securities ETF (VTIP)
• IShares 25+ Year Treasury Strips Bond ETF (GOVZ)

When choosing a Treasury ETF, it is important to consider factors such as yield to maturity, duration, liquidity, and expense ratios. These factors will impact the potential returns and risks associated with the investment.

It is also worth noting that Treasury ETFs carry certain risks, including compounding risk, derivative securities risk, correlation risk, and short sale exposure risk, especially when held for periods longer than one day. Therefore, it is important for risk-averse investors to carefully consider their investment objectives, time horizons, and risk tolerance before investing.

Treasury ETFs with best trailing returns

Treasury ETFs are a great way for risk-averse investors to diversify their portfolio. They are a good option for investors who want to avoid the risk of losing money in the stock market. Treasury ETFs offer investors a way to gain passive exposure to U.S. Treasury bonds.

• WisdomTree Floating Rate Treasury Fund (USFR): This ETF has a one-year performance of 0.8%, an expense ratio of 0.15%, an annual dividend yield of 0.03%, and an average daily volume of 2,960,211. It tracks the Bloomberg U.S. Treasury Floating Rate Index, which includes floating-rate bonds with varying maturities.
• IShares Treasury Floating Rate Bond ETF (TFLO): With a one-year performance of 0.6%, an expense ratio of 0.15%, and an annual dividend yield of 0.02%, this ETF is similar to USFR in that it also tracks the Bloomberg U.S. Treasury Floating Rate Index.
• IShares 0-3 Month Treasury Bond ETF (SGOV): This ETF has a one-year performance of 0.3%, the lowest expense ratio of the three at 0.05%, and an annual dividend yield of 0.04%. It targets the ICE 0-3 Month US Treasury Securities Index, providing access to a small segment of the Treasurys market.
• Simplify Short Term Treasury Futures Strategy ETF (TUA): This ETF seeks to outperform the ICE US Treasury 7-10 Year Bond Index by investing in Treasury futures at the short end of the curve. It offers a modest capital allocation with significant duration.
• IShares 7-10 Year Treasury Bond ETF (IEF): This ETF provides targeted access to U.S. Treasury bonds with remaining maturities between seven and ten years. It has an expense ratio of 0.15% and a one-day NAV change of 0.38% as of November 29, 2024.
• Global X 1-3 Month T-Bill ETF (CLIP): With an expected yield to maturity of 4.8% and a duration of just 0.1 years, CLIP offers low volatility and can be used as a cash substitute.
• IShares Short Treasury Bond ETF (SHV): SHV offers a higher yield to maturity of 4.6% and a slightly longer duration of 0.3 years. It can also be used as a cash equivalent and provides monthly distributions.
• SPDR Portfolio Intermediate Term Treasury ETF (SPTI): SPTI provides access to intermediate-term Treasury notes with maturities between two and ten years. It has a very low expense ratio of 0.03% and offers a balanced blend of interest rate risk and yield.
• Vanguard Long-Term Treasury ETF (VGLT): For high-risk investors, VGLT offers long-term Treasury bonds with a yield to maturity of 4.2% and a high average duration of 15 years. It is highly sensitive to interest rate changes.
• IShares U.S. Treasury Bond ETF (GOVT): GOVT takes a "buy the haystack" approach, investing in nominal Treasurys with maturities ranging from one to 30 years. It has a yield to maturity of 4% and a duration of 5.9 years, with an expense ratio of 0.05%.

Treasury ETFs with varying maturities

Treasury exchange-traded funds (ETFs) are a great way for risk-averse investors to diversify their portfolios. They are traded like stocks on major exchanges and hold a portfolio of U.S. Treasury securities, with each ETF differing in time to maturity from less than a year up to 30 years.

Short-term Treasury ETFs

• Global X 1-3 Month T-Bill ETF (CLIP)
• IShares Short Treasury Bond ETF (SHV)
• IShares 0-3 Month Treasury Bond ETF (SGOV)

Intermediate-term Treasury ETFs

• SPDR Portfolio Intermediate Term Treasury ETF (SPTI)
• IShares 7-10 Year Treasury Bond ETF (IEF)
• IShares 1-3 Year Treasury Bond ETF
• IShares U.S. Treasury Bond ETF (GOVT)

Long-term Treasury ETFs

• Vanguard Long-Term Treasury ETF (VGLT)
• IShares 25+ Year Treasury Strips Bond ETF (GOVZ)
• IShares 20+ Year Treasury Bond ETF (TLT)

Treasury ETFs with varying expense ratios

Treasury ETFs are a great way for risk-averse investors to diversify their portfolios. Treasurys are perceived to be the safest securities available given their low probability of default.

Global X 1-3 Month T-Bill ETF (ticker: CLIP)

This ETF has an expected yield to maturity of 4.8% and a very low interest rate sensitivity, making it a decent cash substitute. It tracks the Solactive 1–3-month U.S. T-Bill Index and has a duration of just 0.1 years.

IShares Short Treasury Bond ETF (SHV)

SHV offers exposure to T-bills with maturities of up to one year and has a yield to maturity of 4.6% against an average duration of 0.3 years. It can be used as a cash equivalent and is highly liquid, with a minimal 0.01% 30-day median bid-ask spread. It carries a 0.15% expense ratio.

SPDR Portfolio Intermediate Term Treasury ETF (SPTI)

SPTI is a cheap option for intermediate Treasury exposure, charging a very low 0.03% expense ratio. It offers a balanced blend between interest rate risk and yield by targeting the belly of the yield curve, with maturities of between two and 10 years. It tracks the Bloomberg 3-10 Year U.S. Treasury Index, which gives it an average yield to maturity of 4% against a five-year duration.

Vanguard Long-Term Treasury ETF (VGLT)

VGLT is suitable for high-risk investors interested in the risk-and-return profile of long-term Treasury bonds. These bonds are highly sensitive to interest rates and have a maturity of 10 or more years. The ETF tracks the Bloomberg U.S. Long Treasury Bond Index, offering a yield to maturity of 4.2% and a high average duration of 15 years.

IShares U.S. Treasury Bond ETF (GOVT)

GOVT is a popular Treasury ETF with over $28 billion in assets under management and an expense ratio of 0.05%. It offers diversified maturity exposure, with most of its Treasurys having intermediate maturities of two to just under 10 years. It has an average yield to maturity of 4% and a 5.9-year duration.

Vanguard Short-Term Inflation-Protected Securities ETF (VTIP)

VTIP is designed to protect against inflation by investing in Treasury inflation-protected securities (TIPS). The principal value of TIPS adjusts according to changes in the consumer price index (CPI), and the interest payments are calculated based on the adjusted principal. This ETF has a yield to maturity of 3.8%, an average duration of 2.4 years, and an expense ratio of 0.04%.

IShares 25+ Year Treasury Strips Bond ETF (GOVZ)

GOVZ provides access to Separate Trading of Registered Interest and Principal of Securities (Strips), a special type of Treasury. Strips are highly sensitive to interest rate changes as they offer no periodic coupon payments. This ETF has a duration of 26.8 years and offers a yield to maturity of 4.3%.

Simplify Short Term Treasury Futures Strategy ETF (TUA)

TUA seeks to match or outperform the performance of the ICE US Treasury 7-10 Year Bond Index on a calendar quarter basis. It has an expense ratio of 0.15%.

IShares 7-10 Year Treasury Bond ETF (IEF)

IEF offers exposure to intermediate-term U.S. Treasury bonds with maturities between seven and ten years. It has an expense ratio of 0.15%.

Frequently asked questions