##  [# Treasury ETFs in Investors’ Crosshairs as Yields Creep Higher ](/sections/features/treasury-etfs-investors-crosshairs-yields-creep-higher) 

 

# Treasury ETFs in Investors’ Crosshairs as Yields Creep Higher 

 

 

Safety net returns to favor as two-year note approaches 5% level.



 

 

 

 

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[By Rob Isbitts](/authors/rob-isbitts)

 Jun 27, 2023

 Edited by: Ron Day

 

 

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An old investor safety net is making a giant comeback

The U.S. Treasury had its latest monthly auction of two-year notes on Monday, and they came out at a yield of 4.67%, matching 2023’s high-water mark from February. That’s the highest rate in 16 years.

Treasury exchange-traded funds finally yield enough to be part of many investment allocation conversations.

If you asked investors and financial advisors two years ago when they’d next see a 5% yield—at the time T-bills yielded around 0.4%—they probably would have responded “not in my lifetime.” Even at this time in 2022, yields had crept up to only around 1.6%.

Investors took notice when the one-year Treasury bill crossed the 5% threshold in mid-February, quickly followed by the three- and six-month bills. All currently reside in the 5.3%-5.4% range.

Even in an elevated inflation environment, that is an eye-catcher versus riskier alternatives. It’s likely producing a lot of “kitchen table” discussions for financial advisors with their clients, and among families that manage their own wealth.

This “yield curve creep” toward a 5% rate is notable amid this strange era of sharply “inverted” yields, where T-bills earn more than 30-year Treasury bonds. Furthermore, the amount of time one can lock in close to 5% is gradually lengthening.

All of this creates an embarrassment of riches for financial advisors and investors. Because as nice as it sounds to earn well over 5% on T-bills, those rates are only locked in for months.

However, the opportunity to commit capital to earn, say, 4.7% a year for two years affords an investor plenty of time to sit back and see how the biggest investment uncertainties of 2023 and 2024 play out, while earning a return that seemed like a fantasy just last year.

Sure, inflation is higher, but the bottom line is that two-year bonds have not seen the 5% level since this time of year back in 2006!

## **Glamorous Alternatives**

Previously boring, irrelevant short-term Treasury ETFs are suddenly glamorous alternatives, and asset flows confirm this.

The [**Vanguard Short-Term Treasury Index Fund (VGSH)**](/vgsh) and the [**SPDR Bloomberg 1-3 Month T-Bill ETF (BIL)**](/bil) each had under $14 billion in assets under management at the start of 2022. Now, they hold just over $22 billion and $28 billion, respectively.

Investors will find subtle differences among many Treasury ETFs in terms of which part of the yield curve they focus on. For example, VGSH allocates among one- to three-year securities, while BIL works the shortest end of the spectrum, owning T-bills with one- to three- month maturities.

For those who want to target a specific spot on the curve to capitalize on current rate levels, the [**US Treasury 2 Year Note ETF (UTWO)**](/UTWO) is one of a set of ETFs from the newcomer US Benchmark Series that seeks to always own the current two-year Treasury note.

Another route to target a thin slice of the 30-year wide U.S. Treasury yield curve is via the [**iShares iBonds Dec 2024 Term Treasury ETF (IBTE)**](/ibte). It represents its own bond ladder, with maturities allocated throughout that single year (next year), which today represents a six- to 18-month maturity range.

“Short-term Treasuries are back” is far from the most dramatic headline in Wall Street history. But those creeping yields are providing a valuable talking point for advisors, and a welcome investment option for investors.

 
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 [ Rob Isbitts ](/authors/rob-isbitts) 

 

 

  Rob Isbitts' Wall Street career spans 5 decades and multiple roles, all dedicated to providing clarity to investors by busting classic myths and…   [View Bio](/authors/rob-isbitts)

 



 

 


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