U.S. Treasury bonds can serve as a ballast for your portfolio during turbulent markets because they offer diversification benefits. The total returns of Treasury bonds are negatively correlated with the U.S. stock market. These low-risk securities are also backed by the United States government, so they carry minuscule credit risk, or the risk that the lender won’t make good on coupon payments. iShares US Treasury Bond ETF (GOVT) is a compelling option for exposure to U.S. Treasuries across the entire yield curve. This low-cost strategy earns a Morningstar Analyst Rating of Bronze.
This strategy tracks the ICE U.S. Treasury Core Bond Index, which holds Treasury bonds with one to 30 years remaining until maturity and weights them by market value. Most active Treasury bond managers derive most of their active returns from yield-curve positioning. That said, U.S. Treasuries are one of the most competitively priced areas of the bond market, so indexing Treasuries is a solid approach because it is difficult for active managers to recoup their fees.
Adam McCullough, CFA does not own shares in any of the securities mentioned above. Find out about Morningstar's editorial policies.