T-Bill and chill, or perhaps TBLL in chill. Either way, investors still love that 5+% year on short-duration government bonds, and for good reason. There’s no credit risk, and little volatility. If you’re in the camp that risk-on assets are likely to have a correction, you may want to consider allocating to the Invesco Short Term Treasury ETF (NYSEARCA:TBLL). This is an excellent choice for investors who want a highly liquid, ultra-low-risk investment providing exposure to the US Treasury market.
TBLL is a fund that replicates the performance of the ICE US Treasury Short Bond Index, which measures the return of US Treasury obligations with the shortest remaining maturities (up to 12 months). It is not a money-market fund. It attempts to maintain Treasury bill yield with little capital risk. All for a minimal management fee of just 0.08%.
A Look At The Holdings
The ETF’s portfolio consists of a mix of about 78 positions of various short-term US treasury securities, which include bills, notes and bonds. No position makes up more than 2.52%, but even if the weighting were greater, it wouldn’t change the risk profile of the fund one bit.
The result is that the effective duration equates to just 0.32 years, meaning it isn’t sensitive to interest rates at all other than through reflecting the yield of Treasuries it invests in.
Sector Composition and Weightings
Since this is entirely about Treasuries, all that matters here is the maturity profile. As we can see clearly, the entire fund is in the 0-1 year maturity range - exactly what you’d expect to see.
Peer Comparison
There are of course plenty of other funds that focus on the short-end of the Treasury curve. Let’s compare the fund to a slightly higher maturity profile one in the Vanguard Short-Term Treasury ETF (VGSH). This fund tracks the Bloomberg U.S. Treasury 1-3 Year Bond Index, with an average higher maturity and slightly lower expense ratio of 0.04 percent. VGSH potentially offers a marginally higher yield and a lower cost.
When we look at the price ratio of TBLL relative to VGSH, no surprise, TBLL has substantially outperformed precisely because shorter duration was the only place to be since the end of 2021.
Pros and Cons
On the positive side, the fund offers a great value proposition to investors seeking low-cost, low-risk, liquid and diversified exposure to short-term US Treasuries. The portfolio is readily transparent, without much active management or intervention. For cost-conscious investors with a desire to quickly gain exposure to US fixed-income T-Bills, the fund could make for a good base holding.
Additionally, the short-maturity profile offers some protection from adverse movements in interest rates, which more impact longer-term bond prices. As interest rates rise, the fund’s holdings can quickly be rolled into higher rates, mitigating the potential capital losses from greater exposure to longer-duration assets that are more sensitive to those changing interest rates.
But the Invesco Short Term Treasury ETF isn’t perfect – it offers a solid yield at 5.27% currently, but doesn’t match up against riskier fixed-income returns that come from corporate bonds or high-yield debt. For example, I've written about the iShares iBonds 2026 Term High Yield and Income ETF (IBHF) This is a set-term ETF that tracks a US dollar-denominated, high-yield and income-paying corporate bond index. It matures in 2026, and has a 30-Day SEC Yield of 7.54%. Unless the entire world falls apart between now and 2026, this has minimal duration risk (though some credit risk) and higher yield than TBLL.
Furthermore - you should consider the fund in terms of the broader economic and monetary policy environment. For instance, if concern intensifies about the direction of the global economy or if market risk and uncertainty rise, U.S. government bonds and other safe-haven assets could experience higher demand, driving interest rates lower and curbing return prospects for the fund.
Conclusion
The Invesco Short Term Treasury ETF is a good, simple fund. It offers investors easy access to the defensive exposure of the U.S. Treasury market. The fund has a very short average maturity and minimal credit risk. As such, it represents a well-diversified allocation to the short end of the interest-rate curve that any risk-sensitive investor can make. I think if you’re worried about stock market risk, this is a good place to hide out in with nice yield, and high liquidity.
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