Keeping it Short With a Treasury ETF

Investors looking for stability and a little extra income in times of elevated market volatility can consider short-term Treasury exchange traded funds, such as the iShares Short Treasury Bond ETF (NASDAQ: SHV).

SHV tracks the ICE U.S. Treasury Short Bond Index, which is comprised of U.S. Treasury obligations with a maximum remaining term to maturity of 12 months.

“This fund invests in Treasury securities with less than a year remaining until maturity, taking minimal credit and interest-rate risk, which translate to a low yield,” said Morningstar in a note out Friday. “Accordingly, pricing is one of the most important factors driving returns for funds in the ultrashort bond Morningstar Category. This fund enjoys a durable cost advantage over most of its category peers, but there are even cheaper alternatives, which limits the strategy to a Morningstar Analyst Rating of Bronze.”

The $9.49 billion SHV has a 30-day SEC yield of 1.43% and holds 26 bonds. SHV’s standard deviation is just 0.13% and its effective duration is 0.44 years. Duration measures a bond’s sensitivity to changes in interest rates.

Credit and default risk are not concerns with ETFs like SHV because these funds primarily hold U.S. government debt. Nearly 71% of SHV’s holdings carry AAA credit ratings.