Navigate higher Treasury yields with ETFs

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Navigate higher Treasury yields with ETFs

Vanguard Perspective


March 29, 2023

For the first time in more than a decade, U.S. Treasury securities offer meaningful yields, but many advisors and their clients continue to be wary of these bonds.

That's understandable, especially after last year's extreme tumult in the bond market. If you kept Treasuries on the sidelines, you're not alone. In 2022, about 70% of advisor portfolios underweighted Treasuries compared with the Bloomberg U.S. Universal Index, according to an analysis of 485 fixed income portfolios by Vanguard Advisor Portfolio Analytics and Consulting®.1

Federal Reserve interest rate increases have changed the Treasury equation. We believe the outlook for Treasuries has brightened considerably. As a result, you may want to consider reallocating some of your clients' money into Treasury funds to lock in yields that haven't been in these ranges in a decade and may not last.

Why Treasuries offer better value now

Starting in summer 2022, yields ascended well above 3% and have remained there. While the Fed may raise rates more, additional rate hikes might not result in negative returns because bond investors already priced some of those expectations into valuations.

In our fixed income outlook for the first quarter of 2023, we anticipated continued volatility, but higher starting yields put bond investors in a stronger position this year compared with 2022. Yields on investment-grade corporate bonds may appear attractive relative to previous levels, but Treasuries still retain the edge because spreads between high-grade corporate and Treasury bonds remain thin. Treasuries also are more likely to offer stronger protection during a bear-market flight to safety.


Fixed income sector returns and yields

fixed income sector returns and yields

Sources: Bloomberg indexes and JP Morgan EMBI Global Diversified Index, as of December 31, 2022.

Past performance is no guarantee of future returns. The performance of an index is not an exact representation of any particular investment, as you cannot invest directly in an index.

Cover the Treasury spectrum with just three low-cost Vanguard ETFs®

We designed our Treasury ETF lineup with three funds as building blocks so that you can construct efficient, straightforward, low-cost portfolios. 

With this suite of Vanguard U.S. Treasury ETFs, you can tailor portfolios to individual clients and accomplish a wide range of goals:

  • Provide investors with liquid exposure to the full range of Treasury bonds.
  • Target the duration and maturity profiles of your clients' fixed income sleeve.
  • Incorporate tactical tilts that may be able to help shelter clients during equity downturns.
  • Decrease the overall credit risk of a portfolio while aligning to your clients' targeted duration.

Vanguard's approach, reputation, and scale confer significant benefits to you and your clients:

  • You and your clients gain greater coverage across most markets, efficient operations, and instant diversification with exposure to hundreds of securities because our portfolios hold a large number of bonds on a relative basis.
  • You'll find our strong reputation with market participants provides best possible execution from bond dealers and participation in primary issuances.
  • You can maximize returns to your clients because our deep and experienced team manages portfolios that minimize transaction costs and tracking differences relative to our benchmarks.

Get lower costs in more ways than one

You can always count on us to strive to help your clients keep more of their money in their pockets. Our suite of Treasury ETFs accomplishes this in two ways.

Cost advantage Number one: Because our Treasury ETFs are so liquid, it is less expensive to buy the ETF (in terms of bid-ask spread) than to buy the individual bonds. These lower trading costs offset 75% to 100% of the ETF's expense ratio for your clients.

Bid-ask spreads of Vanguard Treasury ETFs compared with underlying bonds

Vanguard ETF ETF bid-ask spread Underlying securities' spread ETF expense ratio
Short-Term Treasury ETF (VGSH) 2 basis points 5 basis points 4 basis points
Intermediate-Term Treasury (VGIT) 2 basis points 5 basis points 4 basis points
Long-Term Treasury (VGLT) 4 basis points 17 basis points 4 basis points

Source: Vanguard, using Bloomberg data as of December 30, 2022.

Note: Vanguard estimated the underlying bond bid-ask spread using Bond Liquidity Analysis, a proprietary calculation that uses Bloomberg data to estimate an aggregated bid-ask spread for the underlying portfolio of bonds for the 20 trading days ended December 30, 2022.


Cost advantage Number two: Besides tight bid-ask spreads, Vanguard's expense ratios beat the industry average by a significant margin across maturities:

Expense ratios of Vanguard funds compared with the Lipper peer averages

Vanguard ETF Fund expense ratio Lipper peer average
Short-Term Treasury (VGSH) 4 basis points 33.1 basis points
Intermediate-Term Treasury (VGIT) 4 basis points 20.9 basis points
Long-Term Treasury (VGLT) 4 basis points 20.9 basis points

Source: Lipper data as of December 31, 2022.


What's the bottom line?

As 2022 so painfully proved, markets are always unpredictable, but current Treasury yields look strong, especially given the meager bond returns of the last decade. While market volatility may continue, higher yields across fixed income markets historically have provided more of a cushion against negative returns. Given that many advisors underweighted Treasuries, you may want to consider adding to your allocations to lock in rates that are relatively high.


1 Vanguard, using portfolio data aggregated by Vanguard Advisor Portfolio Analytics and Consulting from January 1, 2022, through November 30, 2022.



  • For more information about Vanguard funds or Vanguard ETFs, contact your financial advisor to obtain a prospectus or, if available, a summary prospectus. Investment objectives, risks, charges, expenses, and other important information are contained in the prospectus; read and consider it carefully before investing.
  • Vanguard ETF Shares are not redeemable with the issuing Fund other than in very large aggregations worth millions of dollars. Instead, investors must buy and sell Vanguard ETF Shares in the secondary market and hold those shares in a brokerage account. In doing so, the investor may incur brokerage commissions and may pay more than net asset value when buying and receive less than net asset value when selling.
  • Past performance is no guarantee of future results. All investing is subject to risk, including possible loss of principal. Diversification does not ensure a profit or protect against a loss.
  • Bond funds are subject to the risk that an issuer will fail to make payments on time, and that bond prices will decline because of rising interest rates or negative perceptions of an issuer's ability to make payments.
  • U.S. government backing of Treasury or agency securities applies only to the underlying securities and does not prevent share-price fluctuations. Unlike stocks and bonds, U.S. Treasury bills are guaranteed as to the timely payment of principal and interest.
  • Be aware that fluctuations in the financial markets and other factors may cause declines in the value of your account. There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income.

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