Prior to 2022, many retail investors likely eschewed buying individual Treasury bonds from the U.S. government. That’s because they didn’t offer much in the way of income.
A slew of interest rate hikes later, and yields on low-credit-risk U.S. sovereign debt are appealing. They are stoking renewed interest in the bonds among do-it-yourself investors. Many of those investors are familiar with exchange traded funds, of both the equity and fixed income varieties. But they’ve also often turned to TreasuryDirect.gov to purchase specific issues of U.S. government bonds.
However, there are some complexities for retail investors regarding participating in Treasury auctions. That’s particularly so those for bonds with longer-dated maturities. Plus, there are some issues when attempting to purchase those bonds in individual form via traditional brokerages. That shines a light on the advantages of ETFs such as the BondBloxx Bloomberg Ten Year Target Duration US Treasury ETF (XTEN) and the BondBloxx Bloomberg Twenty Year Target Duration US Treasury ETF (XTWY).
Perks of Treasury ETFs XTEN & XTWY
XTEN and XTWY invest in Treasuries with the durations mentioned in the fund names. By embracing these ETFs, market participants get broad exposure to widely embraced Treasurys. Investors don’t have to deal with auctions.
“The price you get on a newly issued long-term Treasury may not be the best. At a brokerage firm, you can bid on previously issued Treasuries in the secondary market just like a stock, by putting in a limit order with a predetermined price. (The primary market is where investors buy new issues.) Unlike with a noncompetitive bid, you control the outcome,” reported Lewis Braham for Barron’s.
There’s another advantage that comes with XTEN, XTWY, and the other members of the BondBloxx suite of fixed income ETFs. That is that most of the widely used brokerage platforms, including those with high brand recognition, don’t charge commissions on basic, pure beta ETFs. That amounts to cost savings for the customer – savings that aren’t afforded when buying single issues straight from a broker or on the secondary market.
“Broker Treasury commissions/markups are generally cheap—Interactive Brokers charges $5—and investors can often find better prices buying secondary-market bonds,” added Barron’s. “Bond fund managers also trade on the secondary market. So, despite the fact they charge a management fee, they may be able to buy bonds at better yields than new issues at TreasuryDirect.”
With XTEN, XTWY, and the other BondBloxx Treasury ETFs, investors needn’t worry about those fees.
For more news, information, and analysis, visit the US Treasuries & TIPS Fixed Income Channel.