How Short-Term Bond ETFs Can Help Put Cash to Work
As an alternative to savings and money market accounts, Certificate of Deposits (CDs), or individual Treasurys, short-term bond ETFs can help investors put their cash to work in pursuit of higher yields.
Higher rates have created attractive defensive yield opportunities on the short end of the curve — namely in Treasurys with less than one year until maturity. Given the inverted yield curve, 1–12 month Treasurys now offer:
- Higher yields than all other tenors1
- Minimal interest rate risk (duration)
And, actively managed ultra-short ETFs can help position portfolios for ongoing volatility.
Why Short-Term Bond ETFs?
ETFs' unique traits enable investors to focus on the investment considerations that matter most to them when pursuing their goals, including:
Lower Costs US-listed fixed income ETFs have a median expense ratio of 0.28%, versus mutual funds' 0.70% . That makes ETFs, on average, 60% lower than their mutual fund counterparts.2 The median net expense ratio for an active fixed income ETF is also lower versus its active fixed income mutual fund peer, 0.40% vs 0.71%.3 ETFs also offer structural advantages, compared to a single security or individual bond exposure. With individual bonds, broker-dealers collect commissions on bonds they sell or buy through markups and markdowns, which are bundled into the quoted price to investors on both sides of the transaction.
Improved Liquidity ETFs’ robust secondary market allows investors to tap into market liquidity more easily than they can with single-CUSIP bond holdings. This enables you to reallocate portfolios quickly across asset classes or meet investor redemptions by selling an ETF position into the market without having to sell single-CUSIP bonds. Fixed income ETFs are also more liquid than mutual funds, as ETFs trade intraday and mutual funds are typically transacted end of day. ETFs also don’t have lockup periods or early withdrawal penalties that can be common with most CDs.
Increased Transparency SPDR index-based and actively managed ETFs report holdings daily, increasing transparency for investors performing due diligence and attribution for risk management. Mutual funds report their holdings less frequently — typically, quarterly. That means allocation changes in a bond mutual fund could take place months before shareholders are aware of them.
Rebalancing ETFs that track indices rebalance each month to ensure the portfolio is comprised of the targeted securities. Owning ETFs allows investors to maintain a constant allocation to a specific type of bonds without handling the cumbersome process of rebalancing short-dated strategies like rolling T-bills.
How to Evaluate Short-Term Bond ETFs
Assess ETFs with these metrics:
Distribution Yield (or 12-month Yield) The sum of the most recent 12 distributions within the past 365 days divided by Net Asset Value per share, expressed as a percentage. This yield metric may become detached from current yield levels if significant rate movements occurred during the year.
30 Day SEC Yield (or Standardized Yield) An annualized yield that is calculated by dividing the net investment income earned by the fund over the most recent 30-day period by the current maximum offering price. Note: money market funds will quote a 7-day SEC Yield.
Yield to Maturity The market weighted average rate of return anticipated on the bonds held in a portfolio if they were to be held to their maturity date.
Ready to Put Cash to Work?
Consider these SPDR® Short-Term Bond ETFs:
SPDR® Bloomberg 1–3 Month T-Bill ETF (BIL), which seeks to provide exposure to US Treasury Bills with remaining maturities between 1 and 3 months.
SPDR® Bloomberg 3–12 Month T-Bill ETF (BILS), which seeks to provide exposure to US Treasury Bills with remaining maturities between 3 and 12 months.
SPDR® SSGA Ultra Short Term Bond ETF (ULST), an actively managed strategy that invests in slightly longer-term securities than traditional cash vehicles. From a sector perspective, the fund can allocate to Treasurys, but also segments with higher risk like credit, asset-backed securities, mortgage-backed securities, and commercial mortgage-backed securities.
Standard Performance
| Ticker | Name | YTD (%) | Annualized | Inception Date |
Gross Expense Ratio |
||||
|---|---|---|---|---|---|---|---|---|---|
| 1 Year (%) |
3 Year (%) | 5 Year (%) | 10 Year (%) | Since Inception (%) | |||||
| BIL (NAV) | SPDR® Bloomberg 1–3 Month T-Bill ETF | 2.25 | 3.56 | 1.16 | 1.38 | 0.82 | 0.78 | May 25, 2007 |
0.13 |
| BIL (MKT) | SPDR® Bloomberg 1–3 Month T-Bill ETF | 2.26 | 3.57 | 1.17 | 1.39 | 0.82 | 0.78 | - | - |
| BILS (NAV) | SPDR® Bloomberg 3–12 Month T-Bill ETF | 2.14 | 3.22 | - | - | - | 1.05 | Sept 22, 2020 | 0.13 |
| BILS (MKT) | SPDR® Bloomberg 3–12 Month T-Bill ETF | 2.15 | 3.22 | - | - | - | 1.07 | - | - |
| ULST (NAV) | SPDR® SSGA Ultra Short Term Bond ETF | 2.38 | 4.24 | 1.49 | 1.82 | - | 1.39 | Oct 9, 2013 |
0.20 |
| ULST (MKT) | SPDR® SSGA Ultra Short Term Bond ETF | 2.36 | 4.27 | 1.44 | 1.82 | - | 1.4 | - | - |
Source: ssga.com, as of 06/30/2023. Performance returns for periods of less than one year are not annualized. Past performance is not a reliable indicator of future performance. Investment return and principal value will fluctuate, so you may have a gain or loss when shares are sold. Current performance may be higher or lower than that quoted. All results are historical and assume the reinvestment of dividends and capital gains. For SPDR ETFs, visit ssga.com for most recent month-end performance. The market price used to calculate the Market Value return is the midpoint between the highest bid and the lowest offer on the exchange on which the shares of the Fund are listed for trading, as of the time that the Fund’s NAV is calculated. If you trade your shares at another time, your return may differ. The gross expense ratio is the fund’s total annual operating expenses ratio. It is gross of any fee waivers or expense reimbursements. It can be found in the fund’s most recent prospectus.
| Ticker | Name | Annualized | Since Inception (%) | Inception Date |
Gross Expense Ratio |
||||
|---|---|---|---|---|---|---|---|---|---|
| YTD (%) | 1 Year (%) | 3 Year (%) | 5 Year (%) | 10 Year (%) | |||||
| GVMXX | State Street Institutional U.S. Government Money Market Fund — Premier Class | 2.32 |
3.76 |
1.23 |
1.49 |
0.92 |
0.80 |
Oct. 5, 2007 | 0.12 |
Source: ssga.com, as of 06/30/2023. Past performance is not a reliable indicator of future performance. Investment return and principal value will fluctuate, so you may have a gain or loss when shares are sold. Current performance may be higher or lower than quoted. Visit ssga.com/cash for most recent month-end performance.