iShares 0-3 Month Treasury Bond ETF

Investing / Brokers
1

Hello everyone

Can anyone explain to me exactely how this ETF works: iShares 0-3 Month Treasury Bond ETF (SGOV)?

The price it seems varies between 100 - 100.30$ and always drops on the 1st or 4th of every month. Is this because of a dividend payment? Is this a distributing ETF?

What will happen with this ETF if the FED decides to lower interest rate again? It seems that the ETF does not go below 100$.

Thanks for your support.

2

Yes, it’s dividends. You can see on https://www.ishares.com/us/products/314116/ishares-0-3-month-treasury-bond-etf#/

Similar etf is BIL.

Because it’s very short term you have very low risk of this losing money on interest rate raises. Also very high risk of future yield quickly dropping when they cut.

In Growth of Hypothetical $10,000 tab you can see your performance had you invested into it (minus tax)

What happens with long term treasuries you can see on TLT :wink:

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3

Ok, if they lower interest rate again, yield will go down but it seems that the price to sell the ETF does not go below 100$. So if I buy for 100$, I will profit from the yield as long as rates are high, and then I can sell for 100$ again. Could it go below 100$? So whats the catch?

4

Why would there be a catch? It’s short term bond there isn’t much interest rate exposure so the bond can’t lose much value.

5

Interest rates go down => bond prices go up
Interest rates go up => bond prices go down (see TLT for last two years)

In this case because of very short maturity you can pretty much ignore impact of rate changes on bond prices.

If tomorrow JPOW does emergency hike by 5 percentage points you may lose a bit, but that’s not going to happen. Also very quickly you will benefit from those increases. But had you held TLT when 5% change happens you’re :skull: :wink:

If you’re interested in parking money for 2 or 4 years have a look at How To Construct A Bond Ladder With IBonds

You have choice in € as well. They don’t roll bonds (SGOV does) so you have more or less defined outcome on maturity.

6

Same as putting money into savings account - opportunity cost. And probably for you also currency risk.

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7

The catches are:

  • Other investments might bring bigger returns during the period of time you would be holding that fund. Buying other assets might be more expensive in the future, by more than the yield you would get in a short term US government fund.

  • The value of $100 will fluctuate when converted into CHF. If your expenses are in CHF, you may end up with less money investing in SGOV (or a similar fund) than by using a savings account (or you might end up with more, on the short term, the currency exchange markets are very volatile).

Edit: basically what @Whimple2 said above.

8

Correct, most short term govt debt is emitted as zero-coupon bond (called treasury “bills”) which always mature at par. So there’s a small repricing lower on hikes but they’ll mature so quickly at 100 that repricing is negligible.

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