While the official site for purchasing U.S. government-issued Treasury bonds is TreasuryDirect, some investors have found its execution to be less than ideal.
Complaints in online forums have criticized the platform’s archaic design, limited accessibility and clunky user interface, which can deter those seeking a more streamlined and modern investment experience.
Fortunately, for investors looking to buy Treasurys directly from their brokerage, there’s an alternative approach that may offer a better experience: investing via an exchange-traded fund, or ETF.
“Treasury ETFs allow investors to gain exposure through a stock-like instrument that trades on market exchanges,” says Tiana Patillo, financial advisor manager at Vanguard. “A Treasury ETF can provide greater liquidity, diversification and lower transaction costs.”
Additionally, these ETFs often distribute income monthly, providing a regular income stream. But perhaps most importantly, they offer clear visibility into the exact exposures received by investors.
“Key things to watch for include yield to maturity, which measures the expected return of the ETF assuming all bonds are held until maturity; and duration, which measures the sensitivity of the ETF’s price to changes in interest rates,” says Rohan Reddy, director of research at Global X ETFs.
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Finally, these ETFs merge the features of single Treasurys, such as their ironclad credit quality, with the accessibility and liquidity of stocks. This combination makes them an attractive option for investors seeking the safety and stability of government bonds, coupled with the convenience and liquidity offered by the stock market.
“Treasurys are perceived to be the safest security available given their extremely low probability of default, as they’re backed by the full faith and credit of the U.S. Treasury Department,” says Jeffrey Johnson, principal and head of fixed-income product at Vanguard.
Here’s a look at seven of the best Treasury bond ETFs to buy in 2024:
| ETF | Expense Ratio | Yield to maturity |
| iShares U.S. Treasury Bond ETF (ticker: GOVT) | 0.05% | 4.3% |
| U.S. Treasury 10 Year Note ETF (UTEN) | 0.15% | 4.1%* |
| iShares iBonds Dec 2033 Term Treasury ETF (IBTO) | 0.07% | 4.1% |
| Global X 1-3 Month T-Bill ETF (CLIP) | 0.07% | 5.5% |
| iShares 20+ Year Treasury Bond ETF (TLT) | 0.15% | 4.4% |
| iShares 20+ Year Treasury Bond BuyWrite Strategy ETF (TLTW) | 0.35% | 4.4% |
| Schwab U.S. TIPS ETF (SCHP) | 0.03% | 4% |
*30-day SEC yield is shown for UTEN.
iShares U.S. Treasury Bond ETF (GOVT)
For maximum diversification when it comes to Treasury investing, investors can buy GOVT, which tracks 181 Treasurys represented by the ICE U.S. Treasury Core Bond Index. With a 0.05% expense ratio, this ETF only costs investors $5 in annual fees for a $10,000 investment. GOVT is highly popular with investors, having attracted more than $25 billion in assets under management, or AUM, since inception.
GOVT’s portfolio features AA-rated Treasurys ranging from less than one year to up to more than 20 years in maturity, averaging out to 7.75 years. This results in an average yield to maturity of 4.3% and duration of just over six years, implying intermediate interest rate sensitivity. The ETF constantly churns its portfolio to ensure that holdings stay representative of its index, and it also pays interest income on a monthly basis.
U.S. Treasury 10 Year Note ETF (UTEN)
UTEN is a highly innovative example of a single-bond ETF. As its name suggests, this type of ETF only holds a single bond at a time — in this case, the latest 10-year Treasury note. This note is “wrapped” in the ETF structure, which gives it excellent liquidity and trading akin to a stock. The ETF itself accrues and pays out the interest income monthly.
UTEN is traded on the Nasdaq and is very liquid, with a 30-day median bid-ask spread of just 0.07%. The current note held by UTEN is a Treasury maturing on Feb. 15, 2034, with a 4% coupon. Investors can buy this ETF for a 0.15% expense ratio and can find additional single-bond ETFs like UTEN providing exposure to Treasurys ranging from three months to 30 years in maturity.
iShares iBonds Dec 2033 Term Treasury ETF (IBTO)
Another way Treasury ETF investors can size their exposure better is via defined-maturity bond ETFs like IBTO, which is part of the iShares iBonds lineup. This ETF holds a diversified portfolio of Treasury bonds all set to mature between Jan. 1, 2033, and Dec. 15, 2033, for a low 0.07% expense ratio. Before its target date, the ETF will pay out monthly interest accrued from its underlying bonds.
However, unlike regular Treasury ETFs, IBTO has a termination date. When the last Treasury in its portfolio matures, the ETF will liquidate, paying out its net asset value to investors. This makes IBTO and its shorter-maturity counterparts a valuable resource for investors who have defined timelines for investing. Right now, investors can expect a yield to maturity of 4.1% and duration of 7.7 years.
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Global X 1-3 Month T-Bill ETF (CLIP)
The safest Treasurys, called Treasury bills or T-bills, lie at the short end of the yield curve. With maturities of less than a year, T-bills provide low interest rate sensitivity, making them much safer in a rising-rate environment. In fact, an accompanying rise in short-term rates can increase their yields significantly. In 2024, investors can earn 5% and upward with T-bills.
To access T-bills in ETF form, Global X offers CLIP. With a 0.07% expense ratio, CLIP is one of the more affordable options available. By tracking the Solactive 1–3 month U.S. T-Bill Index, CLIP provides a competitive 5.5% yield to maturity with a duration of only 0.1 year. That means that if interest rates were to rise by 100 basis points, CLIP would only be expected to lose 0.1% in price.
iShares 20+ Year Treasury Bond ETF (TLT)
TLT was one of the most popular bond ETFs throughout 2023, drawing high net inflows as investors piled in on expectations of a future interest rate cut. With an effective duration of 16.9 years, a 100-basis-point cut in rates could lead to a 16.9% price upside for this ETF. However, this trade did not pan out in 2023, with TLT ending the year with a 3% total return despite enduring high volatility.
That being said, this ETF could be a good holding not just for those banking on potential rate cuts, but also for investors looking to protect against a market crash or recession. In 2008 during the financial crisis, TLT returned a total of 33.9%, whereas the SPDR S&P 500 ETF (SPY) plunged to the tune of 36.8%. With a low five-year correlation of 0.19 compared to the broader market, this ETF could be a viable hedge.
iShares 20+ Year Treasury Bond BuyWrite Strategy ETF (TLTW)
More risk-averse investors only moderately bullish on TLT can use its covered call variant, TLTW, to produce high income. This ETF sells covered calls on TLT, which has the effect of capping the underlying upside return but produces higher monthly income. Case in point, TLTW has paid a trailing 12-month yield of 18% as of March 7, thanks to the high volatility of TLT, which increases options premiums.
TLTW’s covered call strategy may be ideal for slightly bearish investors who are banking on a flat but choppy bond market. By buying TLTW, investors are forgoing the potential for TLT to suddenly spike in favor of more consistent income. Essentially, you’re sacrificing future potential for an immediate return. However, the ETF is a bit more expensive than TLT, charging 0.35% instead of 0.15%. All in all, if you have a market outlook that reflects this Treasury ETF’s philosophy, those extra 20 basis points shouldn’t dissuade you from investing.
Schwab U.S. TIPS ETF (SCHP)
While the trend in U.S. inflation numbers has been good over the last year (inflation is decelerating), it’s a bit premature to consider the inflation risk factor totally tamed. For investors wary of another sudden unexpected increase in inflation, buying an ETF like SCHP that holds Treasury inflation-protected securities, or TIPS, could be a viable option.
TIPS are unique because unlike regular Treasurys, their face value is pegged to the consumer price index, and thus inflation. If inflation rises unexpectedly, the value of TIPS will do so as well, which also has the effect of increasing their coupon. By buying SCHP, investors can gain exposure to a broad portfolio of them via the Bloomberg U.S. Treasury Inflation-Linked Bond Index for a low 0.03% expense ratio.
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What’s the Best Treasury ETF? 7 Options for Investors originally appeared on usnews.com
Update 03/11/24: This story was previously published at an earlier date and has been updated with new information.
