SHY ETF

The broader stock markets are really starting to heat up heading into the election.

For investors seeking momentum, iShares 1-3 Year Treasury Bond ETF SHY is probably on the radar. The fund just hit a 52-week high and is up 3% from its 52-week low price of $80.62/share.

The iShares 1-3 Year Treasury Bond ETF is a low-duration, zero-credit-risk fixed-income ETF, but other ETFs offer lower expense ratios. Falling oil prices since August may significantly impact CPI figures and consumer inflation expectations, potentially leading to Fed rate cuts. The decline in oil prices, driven by supply factors and slowing industrial demand, could help tame inflation and influence Fed policy.

The iShares 1-3 Year Treasury Bond ETF is a short-term Treasury ETF that is particularly influenced by expectations for short-term interest rates. Inflation is still high, as indicated by PPI, suggesting that there may be further inflation due to rising labor costs. While the yield curve predicts rate cuts in the coming year, there is no certainty in this forecast, which could lead to potential underperformance in SHY.

iShares 1-3 Year Treasury Bond ETF provides exposure to short-term U.S. Treasury bonds and offers stability and attractive yields. SHY holds exclusively U.S. Treasuries, eliminating credit risk, and has a stable price with an average yield to maturity of 4.56%. Vanguard Short-Term Treasury ETF is a cheaper alternative to SHY, with similar investment objectives and historically better performance.

The Treasury yield curve has moved lower as softening inflation data prompts bond investors to rethink their allocations. Stocks, led by small caps, surged last week for a 3rd straight weekly advance. SHY ETF offers a modest annual expense ratio and liquidity, but the yield is expected to fall as rate cut chances increase.

Big Nasdaq stocks are the big story lately, but not to me. The S&P 500 is limping along, and I think a much bigger situation is developing in 2023. That situation is the yield on the 2-year U.S. Treasury Note. As it carves out a path toward 5%, it has the potential to disrupt the stock market, big time.

Advisors tend to think of security-level diversification as one of the benefits of an ETF. While this is true, single-security Treasury bond ETFs can also provide the same advantages: ease of use, liquidity, and transparency.

Get Ready For 5% Money Markets: VGSH Appealing, But Not Best For Your Cash.