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ETF Specialist

Short-Term Treasury ETFs Offer Safety, but Not Much Else

These ETFs protect against inflation and the potential for loss of principal.

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Short-term Treasuries are among the safest assets available to investors. They carry virtually no credit risk and little interest-rate risk. They’ve also tended to do well when stocks haven’t. Additionally, the opportunity cost of investing in an ultra-safe asset like short-term Treasuries is not as steep now as it has been historically. This is because the yield curve has been fairly flat, meaning that investors have not been compensated for taking additional risk.

The Case for Short-Term Treasury ETFs
Exhibit 1 below illustrates the safety of an investment in a short-term Treasury fund compared with the Bloomberg Barclays Aggregate Bond Index and the S&P 500. Over the 15 years through August 2019, the Bloomberg Barclays U.S. Treasury 1-3 Year Index, which includes original term U.S. Treasury bonds with between one and three years until maturity, generated the fewest number of negative monthly returns and had the shallowest drawdowns. Over this same stretch, the index’s standard deviation was nearly 2 percentage points lower than the aggregate bond index and over 10 percentage points less than S&P 500.

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