Treasury bonds are usually the best tool for downside protection and volatility reduction in a diversified investment portfolio alongside stocks. Here we'll look at the best treasury bond ETFs.
Disclosure: Some of the links on this page are referral links. At no additional cost to you, if you choose to make a purchase or sign up for a service after clicking through those links, I may receive a small commission. This allows me to continue producing high-quality, ad-free content on this site and pays for the occasional cup of coffee. I have first-hand experience with every product or service I recommend, and I recommend them because I genuinely believe they are useful, not because of the commission I get if you decide to purchase through my links. Read more here.
Prefer video? Watch it here:
Introduction – Why Treasury Bonds?
The federal government issues bonds to investors to pay for operating costs in running the country. Because they're guaranteed by the full faith and credit of the U.S. government, treasury bonds are considered to be the “safest” investment, and are thus popular among retirees and risk-averse investors. More importantly, treasury bonds offer the lowest correlation to stocks of any asset class, providing a superior diversification benefit compared to corporate bonds. As a result, treasury bonds should typically be the first diversifier of choice alongside stocks.
Treasury bond behavior differs among different maturity lengths along the yield curve. Ultra-short-term treasury bonds with a maturity of less than 1 year are called “T Bills.” They are considered to be a “cash equivalent” because of their nearly nonexistent exposure to interest rate risk. This safety also comes with the lowest expected returns. On the flip side are “long bonds” with maturities greater than 20 years. In between those are “intermediate term” bonds with maturities of 5 years, 7 years, 10 years, etc. Various funds offer baskets of bonds of specific maturities.
Long-term bonds offer more risk with the potential for more reward, having the most exposure to interest rate risk. Longer-term bonds also tend to be less correlated to stocks than shorter-term bonds. As the names suggest, long-term bonds are more appropriate for investors with a long time horizon, and short-term bonds are more appropriate for retirees with a short-time horizon. I'm of the mind that bond duration should roughly match the investing horizon, especially for those with an aggressive asset allocation that only allocates a small amount of the portfolio to bonds.
Now let's look at the best treasury bond ETFs.
The 10 Best Treasury Bond ETFs
Below are the 10 best treasury bond ETFs, sorted by shortest to longest duration.
SGOV – iShares 0-3 Month Treasury Bond ETF
SGOV is the most affordable ETF for T-bills, making it extremely popular with over $10B in assets. Out of this list, it is the closest you can get to a true “cash equivalent.” The fund seeks to track the ICE 0-3 Month US Treasury Securities Index of T-Bills with maturities between 1 month and 3 months. This ETF has a net expense ratio of 0.05%.
I did a separate post specifically on SGOV here.
CLTL – Invesco Treasury Collateral ETF
Slightly longer than SGOV above is CLTL, the Invesco Treasury Collateral ETF, holding bonds with maturities of 1 year or less. Its average weighted maturity is about 4 months. The fund seeks to track the Barclays Capital U.S. Short Treasury Bond Index and has an expense ratio of 0.08%.
SCHO – Schwab Short-Term U.S. Treasury ETF
SCHO from Schwab is the most affordable fund for short-term U.S. Treasury bonds between 1 year and 3 years.
It has an expense ratio of only 0.03%, and its effective duration is is roughly 2 years.
Other popular funds for similar exposure include VGSH from Vanguard and SHY from iShares, but SCHO is cheaper than those.
SCHR – Schwab Intermediate-Term U.S. Treasury ETF
Next we've got SCHR, another offering from Schwab, this time for intermediate treasuries with an effective duration of about 5 years. Like SCHO, SCHR is very affordable with an expense ratio of only 0.03%.
This ETF seeks to track the Bloomberg U.S. 3-10 Year Treasury Bond Index.
IEF – iShares 7-10 Year Treasury Bond ETF
Still in the intermediate space but slightly longer than SCHR above is the iShares 7-10 Year Treasury Bond ETF (IEF), which seeks to track the ICE U.S. Treasury 7-10 Year Bond Index. The fund has a weighted average maturity of 8.4 years and an expense ratio of 0.15%
GOVT – iShares U.S. Treasury Bond ETF
Those seeking broader exposure – or those who don't want to pick a bond maturity – may simply want to buy the entire U.S. treasury market, which can be done with GOVT, the iShares U.S. Treasury Bond ETF. The fund matches the weighted average maturity of the whole U.S. treasury bond market at about 8.5 years.
GOVT tracks the ICE U.S. Treasury Core Bond Index, holding bonds with maturities between 1 year and 30 years. This ETF has over $14 billion in assets and an expense ratio of 0.05%.
TLH – iShares 10-20 Year Treasury Bond ETF
Investors seeking specific exposure to maturities between “intermediate” and “long” can use the iShares 10-20 Year Treasury Bond ETF (TLH). This fund is less popular than others on the list, with assets of only a little over $1 billion. The ETF seeks to track the ICE U.S. Treasury 10-20 Year Bond Index and has an expense ratio of 0.15%.
VGLT – Vanguard Long-Term Treasury ETF
The Vanguard Long-Term Treasury ETF (VGLT) is a popular, affordable way to access long-term treasury bonds. Bonds in this fund have a weighted average maturity of about 23 years. The fund seeks to track the Bloomberg Barclays U.S. Long Treasury Bond Index and has an expense ratio of 0.04%.
TLT – iShares 20+ Year Treasury Bond ETF
Slightly longer than VGLT above is the iShares 20+ Year Treasury Bond ETF (TLT), with a weighted average maturity of 25 years. TLT can be considered more liquid than VGLT but has a higher expense ratio at 0.15%. The fund seeks to track the ICE U.S. Treasury 20+ Year Bond Index.
EDV – Vanguard Extended Duration Treasury ETF
STRIPS are long-dated treasury bonds with the coupon payment “stripped,” or removed. The fund seeks to track the Bloomberg Barclays U.S. Treasury STRIPS 20–30 Year Equal Par Bond Index and has a weighted average maturity of a littler over 25 years. EDV has an expense ratio of 0.06%.
Where To Buy These Treasury Bond ETFs
All the above treasury bond ETFs are available at M1 Finance. M1 has zero trade commissions and zero account fees, and offers fractional shares, dynamic rebalancing, intuitive pie visualization, and a sleek, user-friendly interface and mobile app. I wrote a comprehensive review of M1 Finance here. Investors outside the U.S. can find these ETFs on eToro.
Disclosure: I am long SGOV and EDV in my own portfolio.
Interested in more Lazy Portfolios? See the full list here.
Disclaimer: While I love diving into investing-related data and playing around with backtests, this is not financial advice, investing advice, or tax advice. The information on this website is for informational, educational, and entertainment purposes only. Investment products discussed (ETFs, mutual funds, etc.) are for illustrative purposes only. It is not a recommendation to buy, sell, or otherwise transact in any of the products mentioned. I always attempt to ensure the accuracy of information presented but that accuracy cannot be guaranteed. Do your own due diligence. All investing involves risk, including the risk of losing the money you invest. Past performance does not guarantee future results. Opinions are my own and do not represent those of other parties mentioned. Read my lengthier disclaimer here.
Don't want to do all this investing stuff yourself or feel overwhelmed? Check out my flat-fee-only fiduciary friends over at Advisor.com.
I’m having trouble understanding why someone would choose VGLT over EDV. Could you go over the differences a bit more in detail?
John Williamson says
If their time horizon is 20 years instead of 25 years.
Cesar Espinoza says
Thoughts on zroz? Tya?
John Williamson says
ZROZ is basically the same thing as EDV. I like the idea behind TYA but its behavior has looked a bit wonky.
Pablo Guzmán says
ZROZ has about twice the expense ratio and half the average volume of EDV. For these reasons, I chose EDV.
Erick C says
I have a question regarding what you mean by your bond maturity should match your investment horizon. Say my current investment horizon is 25 years from now and I select VGLT as a result. Does this mean I hold VGLT forever or should I adjust and begin to hold VGIT as that horizon approaches, then VGSH and so on? Thank you for putting up all this information! It is a valued resource for me.
John Williamson says
Decrease duration as the horizon shortens, while increasing bond allocation.
Estevan Rangel says
I really worry about gold especially for retirees. Now if you buy when it dips it can work but still gold can crash for 20 years and retirees do not have the luxury of time like an twenty year old does. What are your thoughts on this?
John Williamson says
Who said anything about gold?