Are Any Treasury ETFs Safe?

Print This!

 

ron rowland Are Any Treasury ETFs Safe?

Your heroes in Washington D.C. are locking horns about the government debt. If they don’t reach a deal very soon, the Treasury may have to stop borrowing money next month.

This is, of course, exactly what the Treasury should have done a long time ago, in my opinion. The national debt is out of control. Instead of making tough decisions, Congress and the White House have stalled for decades. They can’t do this forever — which is why Weiss Ratings downgraded U.S. government debt from C to C-minus last week.

I don’t know how it will all end. But here’s what I do know: If you own Treasury ETFs, you’re on the wrong end of a potentially bad loan. We can no longer assume that U.S. government debt carries no credit risk.

image1 Are Any Treasury ETFs Safe?
They get a C-minus.

 

On the other hand, what are the alternatives? Exactly what else are you supposed to do with your cash? We don’t have many good choices.

Last week I told you how to use duration to assess the risk of rising interest rates. As I said, credit risk is different. There is a connection, though. Smart lenders keep risky borrowers on a tight leash — the tighter the better.

If you must loan your money to a shady character, then you at least want to get your cash back as soon as possible. You do this by keeping your maturity and duration short.

I totally agree with Martin’s latest assessment: Avoid medium- and long-term U.S. government securities. That includes Treasury ETFs with average duration of more than 1-3 years. And you probably ought to stay on the shorter end of that scale.

Even short-term Treasury ETFs aren’t free of credit risk or interest rate risk. And the yields aren’t exactly impressive, either. But conservative investors should take a look, anyway.

What Is “Short-Term?”

This may seem like a simple question, but it’s an important one. Treasury securities are issued with maturities as short as three months and as long as thirty years — plus various points in between.

ETF sponsors know investors usually want to stick with one part of the yield curve. I like the way iShares breaks it down. They have six Treasury bond ETFs. The most conservative, SHV, keeps its portfolio maturity at one year or less. Their other five offerings cover ranges of 1-3 years, 3-7 years, 7-10 years, 10-20 years, and 20+ years.

Pages: Next

Be kind & share...Share on Facebook0Tweet about this on Twitter0Share on LinkedIn0Pin on Pinterest0Share on Google+0Digg this
.

Disclaimer: The content included herein is for educational and informational purposes only, and readers agree to Wall Street Sector Selector's Disclaimer, Terms of Use, and Privacy Policy before accessing or using this or any other publication by Wall Street Sector Selector or Ridgeline Media Group, LLC.

Go to Wall Street Sector Selector Home or Check our Special Wall Street News Section

Visit Us On TwitterVisit Us On FacebookVisit Us On YoutubeVisit Us On Linkedin
Make sure you create your redirects.txt file and that it's readable by the redirect script.