T Bills are ultra-short-term treasury bonds backed by the full faith and credit of the U.S. government. Here we’ll check out the best T Bill ETFs to buy treasury bills in 2022.
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Introduction – Why T Bills?
T Bills, short for treasury bills, are just ultra-short-term bonds from the U.S. government. These short bonds with maturities of less than a year are called bills. Because they’re backed by the full faith and credit of the U.S. government, they possess no liquidity risk, credit risk, or default risk inherent of corporate bonds. As such, T Bills are quite literally the “risk-free asset,” as they’re called. These special, seemingly boring bonds are considered a “cash equivalent.”
At this point you might be thinking this all automatically means negligible returns from treasury bills, but you’d be wrong. Their annualized historical return from 1928 to 2020 was 3.32%. The average rate of inflation over that period was 3.02%, which means a real return (return adjusted for inflation) of 0.3%.
T Bills are sold at a discount and don’t pay a coupon like most bonds, so they simply return their face value at maturity. The difference between your purchase price and that face value is your “interest.” Because they’re able to be rolled quickly, T Bills are also a decent inflation hedge. T Bills essentially kept pace with inflation during the double-digit inflation of the 1970’s in the U.S.! T Bills are a great place to park excess cash to be used for near-future liabilities so that you don’t lose that purchasing power to inflation.
This might sound crazy, but there have also been extended periods where T Bills outperformed the stock market: the 15 years from 1929 to 1943, the 17 years from 1966-82, and the 13 years from 2000-12. Any purveyor of market history will recognize these periods as being pretty abysmal for stocks. Stocks and treasury bonds tend to be inversely correlated, meaning when stocks zig, bonds tend to zag. Specifically, treasury bonds are a “flight to safety” asset that investors flock to during stock market turmoil or uncertainty.
Now that you know why treasury bills are attractive for a variety of purposes and audiences, let’s check out the best T Bill ETFs with which to buy them.
The 5 Best T Bill ETFs
Below are the 5 best treasury bill ETFs. They vary somewhat in size, maturity, and fees.
SHV – iShares Short Treasury Bond ETF
The iShares Short Treasury Bond ETF (SHV) holds T-bills with maturities of 1 year or less. Its average weighted maturity is 4.7 months. This fund has over $14 billion in assets, likely simply because it is the oldest fund on this list. SHV has an expense ratio of 0.15% and seeks to track the Barclays Capital U.S. Short Treasury Bond Index.
BIL – SPDR Bloomberg Barclays 1-3 Month T-Bill ETF
BIL goes shorter than SHV above and holds treasury bills with maturities between 1 and 3 months. As such, BIL has comparatively less interest rate risk than SHV. This fund has over $12 billion in assets and an expense ratio of 0.14%. It seeks to track the Bloomberg Barclays 1-3 Month U.S. Treasury Bill Index.
GBIL – Goldman Sachs Access Treasury 0-1 Year ETF
Think of GBIL as basically a cheaper version of SHV above, holding T-bills with a time to maturity of less than 1 year. The fund seeks to track the FTSE US Treasury 0-1 Year Composite Select Index and has an expense ratio of 0.12%. The fund has nearly $2 billion in assets.
CLTL – Invesco Treasury Collateral ETF
Like SHV and GBIL, CLTL also holds T bills with less than a year left to maturity. It’s newer than the other funds already discussed, boasting only about $600 million in assets, but it’s also cheaper with an expense ratio of 0.08%. The fund seeks to track the ICE U.S. Treasury Short Bond Index.
SGOV – iShares 0-3 Month Treasury Bond ETF
SGOV from iShares is the newest fund on the list, having launched in May, 2020. It is similar to BIL, holding T-bills with maturities less than 3 months.
It’s also the cheapest right now at 0.03%, because the managers have chosen to waive part of its fee (0.09%) until June 30, 2022, at which point it should go to 0.12%. If you are looking for a treasury bill ETF before that date, then go with SGOV. Otherwise, consider CLTL for slightly longer bills but a much lower expense ratio.
Where To Buy These T Bill ETFs
All the above ETFs for treasury bills should be available at any major broker. My choice is 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.
What do you think of T-bills? Let me know in the comments.
Disclaimer: While I love diving into investing-related data and playing around with backtests, I am in no way a certified expert. I have no formal financial education. I am not a financial advisor, portfolio manager, or accountant. This is not financial advice, investing advice, or tax advice. The information on this website is for informational and recreational 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. Do your own due diligence. Past performance does not guarantee future returns. Read my lengthier disclaimer here.