As the Federal Reserve continues to tighten policy, the ability to generate returns in short-dated fixed income ETFs has increased. As a result, money has been flowing into short term treasuries and cash type products to gain interest from investors.
The median forecast remains for another two rate hikes this year, but a growing number of policymakers foresee three being required to prevent the economy from overheating.
Three of the major ETFs that have attracted new investor interest have been iShares Short Treasury Bond ETF (SHV) and iShares 1-3 Year Treasury Bond ETF (SHY), and SPDR Blmbg Barclays 1-3 Mth T-Bill ETF (BIL).
As expected, the Federal Reserve raised the Fed Funds target a quarter point to its new range of 1.50% to 1.75%. As risk increases along with time, these short duration ETFs are less exposed to fluctuations in interest rates than longer duration securities and thus more secure investments.
1. iShares Short Treasury Bond ETF (SHV)
The iShares 1-3 Year Treasury Bond ETF seeks to track the investment results of an index composed of U.S. Treasury bonds with remaining maturities between one and three years. It is a short duration of .4 years with a 1.61% yield. It has seen $2.16 billion in flows over the course of the month which is 58% of the total flows YTD.