An ETF for Those Seeking Safety at the Short End of the Yield Curve
If preserving principal in the near term is an investor’s primary objective, then this fund will likely do the trick.
IShares 1-3 Year Treasury Bond (SHY) provides exposure to a portfolio of short-term Treasury bonds and, as of the beginning of April 2016, had an average duration of 1.9 years. Treasury bonds are full faith and credit obligations of the U.S. government and thus carry minimal credit risk. That said, the fund can suffer modest fluctuations in net asset value when short-term rates move sharply and is thus not a perfect substitute for a cash account.
Bond prices have an inverse relationship to interest rates. As a result, if bond yields go up, bond prices go down. SHY's 1.9-year duration implies that if yields on short-term Treasuries rise 1 percentage point, then the value of SHY's portfolio will decline by about 1.9%. In the fourth quarter of 2015, for example, the fund lost 48 basis points as short-term yields increased in anticipation of the Federal Reserve’s December 2015 25-basis-point rate hike, its first in nearly a decade.
Sarah Bush does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.
Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.
We’d like to share more about how we work and what drives our day-to-day business.
We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.
How we use your information depends on the product and service that you use and your relationship with us. We may use it to:
To learn more about how we handle and protect your data, visit our privacy center.
Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.
To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.
Read our editorial policy to learn more about our process.