Treasury ETFs

Treasury ETFs invest exclusively in U.S. government bonds, which are backed by the full faith and credit of the United States and are considered among the safest fixed-income investments in the world. These funds cover various maturities from short-term bills to long-term bonds, allowing investors to precisely target their desired duration and interest rate sensitivity.

Core treasury ETFs include TLT (iShares 20+ Year Treasury Bond ETF), which holds long-duration Treasuries and is highly sensitive to interest rate changes, IEF (iShares 7-10 Year Treasury Bond ETF), which targets intermediate-term Treasuries for a balance of yield and duration risk, and SHY (iShares 1-3 Year Treasury Bond ETF), which focuses on short-term Treasuries for minimal interest rate risk and capital preservation.

Treasury ETFs serve different roles depending on maturity. SHY acts as a cash alternative with slightly higher yields and minimal price volatility. IEF provides a core fixed-income allocation with moderate interest rate sensitivity. TLT is often used as a hedge against equity market crashes and deflation, as long-term Treasuries tend to rally during flights to safety. Treasury interest is exempt from state and local taxes, which is an advantage in high-tax states. Investors should match their maturity selection to their investment horizon and purpose, understanding that longer duration means more price volatility in response to rate changes.