A bond ETF in the spotlight

A bond ETF in the spotlight

Bonds
Hans Oudshoorn

Summary:  Now that interest rates have risen globally, bonds - especially short-term loans - offer opportunities for investors again.


Level: Any experience


After the sharp falls in bond prices in 2022, opportunities are re-emerging. Globally, short-term interest rates have been raised sharply by central banks whilst long-term rates lag behind, so the 'short-term belly of the yield curve' is the most promising. Currently, many existing bonds - including short ones - are quoted below par and in the recently published Quarterly Outlook "My name is Bond. Long Bond(s)." as well as the article “Why are US T-bills on everybody’s lips?” you can read that new bonds are again offering (higher) coupon rates that we have not seen in years.

As a result, I recently have received a lot of questions - from clients, colleagues and friends - about bond investment opportunities. Therefore, with the falling prices and current higher coupon rates in mind, I would like to share an idea for fixed income securities with short maturities.

In this article I first briefly zoom in on the issuer, consider the investment approach of the ETF and discuss the costs, dividends and risks. I also assume you are familiar with bonds and ETF’s.

iShares $ Treasury Bond 1-3yr UCITS ETF

Founded in 1988, New York-based asset manager BlackRock has become the world's largest asset manager. The company now has 19,800 employees and some US$8,600 billion (!!!) under management. It offers a wide range of investment solutions that allow investors and clients to achieve their financial goals.

For those with dollars to invest as well as accepting currency risk, BlackRock offers an interesting ETF from the iShares family: the iShares $ Treasury Bond 1-3yr UCITS ETF with US$9.9 billion in invested assets. There are several currency flavours of the title; it is also tradable on various exchanges. I discuss the variant which pays incoming coupon rates semi-annually (March and September) in the form of dividends (ISIN IE00B14X4S71).

The approach

The approach of this ETF is quite simple. The portfolio consists of 92 US government bonds with an average rating of AA, or investment grade. Currency-wise, the dollar is, of course, purveyor, so there is currency risk if you invest in the EUR or GBP variant. The benchmark is the ICE U.S. Treasury 1-3 Year Bond Index, which they have managed to follow neatly since its inception on 2 June 2006 except for a cost friction.

Ongoing charges fee, dividends and risks

The ongoing charges fee for this ETF is a very sharp 0.07% per annum. Underlying, the net yield (effective yield) of the ETF is currently 5.1% and the average maturity is about 2 years. Of course, the payout could be lower in the future. After all: the value of your investment and coupons can fluctuate. Past performance is no guarantee for the future.


Overall, the ETF offers a great way to invest in short-term US government bonds in a diversified manner. Particularly for investors who want income from their assets, want more portfolio stability and (partly) wish to avoid the vagaries of the stock market. Add BlackRock's knowledge and experience and the five stars at
Morningstar are explained. Is that all? No. The Morningstar Analyst Rating™ has the highest attainable status of ‘Gold’.

And the main risks? Despite the fact that T-bills are one of the safest investments available to USD investors, you should know that they carry interest rate risk and can move substantially around future debt ceiling issues. Besides that, as mentioned above, you have currency risk if you invest in the non-dollar variants of the ETF.

What else? You buy the investment product by the piece, just like a stock. Want to know more? Take a look at the infopage of iShares.

Quarterly Outlook

01 /

  • Upending the global order at blinding speed

    Quarterly Outlook

    Upending the global order at blinding speed

    John J. Hardy

    Global Head of Macro Strategy

    We are witnessing a once-in-a-lifetime shredding of the global order. As the new order takes shape, ...
  • Equity outlook: The high cost of global fragmentation for US portfolios

    Quarterly Outlook

    Equity outlook: The high cost of global fragmentation for US portfolios

    Charu Chanana

    Chief Investment Strategist

  • Asset allocation outlook: From Magnificent 7 to Magnificent 2,645—diversification matters, now more than ever

    Quarterly Outlook

    Asset allocation outlook: From Magnificent 7 to Magnificent 2,645—diversification matters, now more than ever

    Jacob Falkencrone

    Global Head of Investment Strategy

  • Commodity Outlook: Commodities rally despite global uncertainty

    Quarterly Outlook

    Commodity Outlook: Commodities rally despite global uncertainty

    Ole Hansen

    Head of Commodity Strategy

  • Macro outlook: Trump 2.0: Can the US have its cake and eat it, too?

    Quarterly Outlook

    Macro outlook: Trump 2.0: Can the US have its cake and eat it, too?

    John J. Hardy

    Global Head of Macro Strategy

  • Equity Outlook: The ride just got rougher

    Quarterly Outlook

    Equity Outlook: The ride just got rougher

    Charu Chanana

    Chief Investment Strategist

  • China Outlook: The choice between retaliation or de-escalation

    Quarterly Outlook

    China Outlook: The choice between retaliation or de-escalation

    Charu Chanana

    Chief Investment Strategist

  • Commodity Outlook: A bumpy road ahead calls for diversification

    Quarterly Outlook

    Commodity Outlook: A bumpy road ahead calls for diversification

    Ole Hansen

    Head of Commodity Strategy

  • FX outlook: Tariffs drive USD strength, until...?

    Quarterly Outlook

    FX outlook: Tariffs drive USD strength, until...?

    John J. Hardy

    Global Head of Macro Strategy

  • Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Quarterly Outlook

    Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Althea Spinozzi

    Head of Fixed Income Strategy

Content disclaimer

The information on or via the website is provided to you by Saxo Bank (Switzerland) Ltd. (“Saxo Bank”) for educational and information purposes only. The information should not be construed as an offer or recommendation to enter into any transaction or any particular service, nor should the contents be construed as advice of any other kind, for example of a tax or legal nature.

All trading carries risk. Loses can exceed deposits on margin products. You should consider whether you understand how our products work and whether you can afford to take the high risk of losing your money.

Saxo Bank does not guarantee the accuracy, completeness, or usefulness of any information provided and shall not be responsible for any errors or omissions or for any losses or damages resulting from the use of such information.

The content of this website represents marketing material and is not the result of financial analysis or research. It has therefore has not been prepared in accordance with directives designed to promote the independence of financial/investment research and is not subject to any prohibition on dealing ahead of the dissemination of financial/investment research.

Please refer to our full disclaimer and notification on non-independent investment research for more details.
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-ch/legal/disclaimer/saxo-disclaimer)

Saxo Bank (Schweiz) AG
The Circle 38
CH-8058
Zürich-Flughafen
Switzerland

Contact Saxo

Select region

Switzerland
Switzerland

All trading carries risk. Losses can exceed deposits on margin products. You should consider whether you understand how our products work and whether you can afford to take the high risk of losing your money. To help you understand the risks involved we have put together a general Risk Warning series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. The KIDs can be accessed within the trading platform. Please note that the full prospectus can be obtained free of charge from Saxo Bank (Switzerland) Ltd. or the issuer.

This website can be accessed worldwide however the information on the website is related to Saxo Bank (Switzerland) Ltd. All clients will directly engage with Saxo Bank (Switzerland) Ltd. and all client agreements will be entered into with Saxo Bank (Switzerland) Ltd. and thus governed by Swiss Law. 

The content of this website represents marketing material and has not been notified or submitted to any supervisory authority.

If you contact Saxo Bank (Switzerland) Ltd. or visit this website, you acknowledge and agree that any data that you transmit to Saxo Bank (Switzerland) Ltd., either through this website, by telephone or by any other means of communication (e.g. e-mail), may be collected or recorded and transferred to other Saxo Bank Group companies or third parties in Switzerland or abroad and may be stored or otherwise processed by them or Saxo Bank (Switzerland) Ltd. You release Saxo Bank (Switzerland) Ltd. from its obligations under Swiss banking and securities dealer secrecies and, to the extent permitted by law, data protection laws as well as other laws and obligations to protect privacy. Saxo Bank (Switzerland) Ltd. has implemented appropriate technical and organizational measures to protect data from unauthorized processing and disclosure and applies appropriate safeguards to guarantee adequate protection of such data.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc.