Investors Hate TreasuryDirect: These Treasury ETFs Offer a Solution

Regular Treasury bond ETFs

When exploring Treasury bond ETFs, a great starting point for new ETF investors is the iShares U.S. Treasury Bond ETF

. This ETF is a prime example of an index-tracking, broadly diversified option that many turn to for comprehensive exposure to the U.S. Treasury market.

GOVT tracks the ICE U.S. Treasury Core Bond Index, which includes Treasury bonds ranging from 1–30-year maturities. It boasts a low expense ratio of 0.05%, making it a cost-effective choice for investors looking to "buy the entire Treasury market."

One key aspect of GOVT is its approach to maintaining its index characteristics, with about 23% turnover annually. This level of trading is significant because, unlike individual Treasury bonds, you cannot hold a position in GOVT to maturity to avoid interest rate risk.

With individual Treasurys, even if rates rise and the market value of the bonds drops temporarily, holding to maturity guarantees the return of your principal.

However, with ETFs like GOVT, the value can fluctuate up and down, governed by the duration of the underlying bonds. Currently, GOVT has a duration of 5.81 years, indicating that it is relatively sensitive to changes in interest rates.

Regarding expected returns, two metrics are important: the 30-day SEC yield and the average yield to maturity. The 30-day SEC yield, a standardized measure for comparing the income potential of bond funds, currently stands at 3.97% for GOVT, with distributions paid monthly.

The average yield to maturity, which measures the average total return expected if all of GOVT's underlying securities were held to maturity, is currently 4.21%. This figure highlights the theoretical return potential, though it's not practical given the ETF's need to turnover holdings to maintain its benchmark characteristics.

Single-issue Treasury bond ETFs

If you're looking to target a specific portion of the yield curve, such as the 10-year Treasury bond, general ETFs like the iShares 7-10 Year Treasury Bond ETF

may not suffice.

Although they provide exposure to maturities around this tenor, they do not focus precisely on the ten-year mark but rather offer a sample of securities within that range.

For more targeted exposure, consider the U.S. Benchmark Series of Treasury ETFs, which spans from 3 months up to 30 years and importantly, holds only the latest on-the-run issue of a specific tenor.

For example, the US Treasury 10 Year Note ETF

specifically tracks the ICE BofA Current 10-Year US Treasury Index and has an expense ratio of 0.15%. As of October 24, UTEN uniquely holds only one security: the United States Treasury Note/Bond 3.875% due 08/15/2034.

This bond will remain the sole holding of UTEN until the next 10-year note is issued. The benefits of such an ETF include highly precise, tailored yield curve exposure combined with the liquidity and structure of an ETF. Additionally, this setup offers the convenience of monthly distributions.

Target maturity Treasury bond ETFs

One popular strategy used by treasury bond investors is laddering. For example, an investor might split $30,000 evenly among 12-month, 2-year, and 3-year Treasuries.

This approach helps to manage interest rate risks and liquidity needs by staggering the maturity dates of investments, ensuring that not all investments mature at the same time or during a potential low-interest-rate period.

Typically, individuals purchasing individual bonds would have to rely on platforms like TreasuryDirect. However, for those looking for a simpler and more user-friendly option, the third and unique type of Treasury ETF—target maturity ETFs—provides a viable alternative.

A leader in this space is the iBond series from iShares. For instance, the iShares iBonds Dec 2025 Term Treasury ETF

specifically holds U.S. Treasury bonds that are set to mature between January 1, 2025, and December 15, 2025.

The significance of the maturity date is crucial; at the end of 2025, IBTF will liquidate and pay out the net asset value (NAV) to investors, functioning much like a regular bond would by returning principal upon maturity. In the meantime, it offers monthly distributions.

This arrangement resolves the issue of the inability to hold to maturity found in regular Treasury bond ETFs like GOVT, which constantly turnover bonds to match their index. It also simplifies the laddering strategy.

Instead of purchasing through TreasuryDirect, an investor could use IBTF for 2025, iShares iBonds Dec 2026 Term Treasury ETF

for 2026, and iShares iBonds Dec 2027 Term Treasury ETF

IBTH

-0.06%

for 2027, facilitating an easy set-up of a bond ladder through a brokerage app, trading them just like stocks.

Please note this article is for information purposes only and does not in any way constitute investment advice. It is essential that you seek advice from a registered financial professional prior to making any investment decision.