Looking Beyond TLT to Short-Term Treasury ETFs

Looking Beyond TLT to Short-Term Treasury ETFs

These bond funds deliver high yields without much price volatility.

Reviewed by: etf.com Staff
Edited by: Mark Nacinovich

The star of the holiday season in ETF-land has been the iShares 20+ Year Treasury Bond ETF (TLT), which has received billions of dollars in inflows this year. 

After practically 20 years in relative obscurity, the now-$44 billion exchange-traded fund is some investors’ definition of the “bond market.” That's the case, even though its holdings cover 20- to 30-year U.S. Treasury bonds, rather than the benchmark 10-year note.  

TLT fell so hard over the past two years that even its recent rally made only a small dent in what is now a year-to-date return of -9%. 

For all its potential, the volatility that comes with investing in long-term bonds, unless your time horizon is that long, may cause ETF investors to limit their enthusiasm and investment allocation to long-term bond ETFs like TLT. It helps to remember that the highest yields across the Treasury yield curve are those with two years to maturity or less.  

If investors can't lock in TLT’s 4.8% yield, a wide variety of ETFs that target that part of the curve are as attractive as they were several months ago, before TLT’s yield jumped from the low 4% area to where it stands now. 

Three Treasury ETFs 

In increasing order of average maturity, here are three ETFs that have delivered an investor experience in 2023 that is akin to the expression baseball players use when a pitch gets a bit too close to the noggin: high and tight. 

The SPDR Bloomberg 1-3 Month T-Bill ETF (BIL) could easily be confused with a money-market fund. It covers similar ground, but in an ETF format.

The $37 billion fund was largely useless to many investors for about a decade. But don’t let its 1% annualized return over the past 10 years fool you. This type of ETF is all about “what have you done for me lately,” which, in the case of BIL, is to deliver a yield comfortably above 5% with little conceivable price risk. TLT’s price moves more in some days than this ETF has moved in its entire 16-year history. 

Just beyond BIL on the short-term Treasury ladder is the iShares Short Treasury Bond ETF (SHV), which tracks maturities out to 12 months. It has held up well, with its yield to maturity still tipping the scales at 5.4%. Its maximum peak-to-trough price drawdown since it started in 2007: 0.45%. That’s not a typo. It is just T-bills doing what T-bills do. Except today, their yields are very palatable. 

And one more step up on the ladder lies the iShares 1–3-Year Treasury Bond ETF (SHY), which has a 4.95% yield and has the added potential to provide a modest amount of price appreciation if the Federal Reserve lowers interest rates aggressively next year.  

TLT has captured the hearts of many, and with good reason. But for investors just getting familiar with the part of the markets beyond stocks, there is a “free lunch” aspect to the shorter end of the yield curve that may still hold appeal as well. 

Rob Isbitts' Wall Street career spans 5 decades and multiple roles, all dedicated to providing clarity to investors by busting classic myths and providing uncommon perspective. He did so as a fiduciary investment advisor, Chief Investment Officer and fund manager for 27 years before selling his practice in 2020. His efforts now focus exclusively on investment research, education and multimedia. He started ETFYourself and SungardenInvestment to provide straightforward commentary and access to his investment intellectual property for portfolio construction, stocks and ETFs. Originally from New Jersey, Rob and his wife Dana have 3 adult children and have lived in Weston, Florida for more than 25 years.