Skip to Content
ETF Specialist

Short-Term Treasury Exposure at a Modest Fee

This ETF is an attractive investment option for exposure to the short end of the U.S. Treasury curve.

Mentioned: , ,

 IShares 1-3 Year Treasury Bond ETF (SHY) provides market-cap-weighted exposure to Treasury securities maturing in one to three years. This exchange-traded fund is one of the lowest-cost options in the short-government Morningstar Category and it carries a very conservative credit-risk profile. As a result, it has held up better than most of its peers during market downturns. However, there are lower-cost alternatives offering comparable exposure, so the fund earns a Morningstar Analyst Rating of Bronze.

This fund only invests in Treasury bonds. So, its performance can diverge from the short-government category average because its typical peer equally divides its assets between Treasuries and agency mortgage-backed-securities. Unlike Treasuries, these mortgage-backed securities do not enjoy the full backing of the U.S. government. But the market tends to price them under the assumption that the U.S. government will back them if necessary (even though there is no contractual obligation for the government to do so). And they are generally backed by high-quality debt. Hence, most funds in the category have a similar, low-credit-risk profile. Also, this fund's duration of two years as of January 2017 was similar to its peers, introducing moderate interest-rate risk. With average credit and duration risk, this fund's yield is on par with the category average.

Phillip Yoo does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.