Personal Finance (Not Investing) • Treasury ETF vs. Nominal bond ETF

Are treasury ETFs really any "safer" than nominal bond ETFs or does that apply only to individual bonds? Thanks for your thoughts.

Thanks jebmke. I should have clarified. Trying to compare treasury ETf to a total bond type ETF that has a mix of treasuries, corporate and securitized (although I know BIV is only treasury and corporate).

Note: I'll use the term "fund" to mean both mutual funds and ETFs.

There are two different kinds of "safety" that need to be distinguished.

One kind involves the comparison between Treasury and Investment-Grade (IG, which includes a blend of Treasury, corporate, and securitized). Here, the main characteristic is credit quality, and Treasuries are indeed "safer" than the other bonds debt because the US government has ways of ensuring they can pay the interest and principal that the other debtors don't have. But it's not an "one is purely safe and the other isn't" -- there are degrees of risk involved, and that's why there's extra reward of higher yield for taking the extra risk.

This kind of safety exists both in a fund's underlying assets, and it exists at the fund level as well.

Another kind involves the fund itself. A fund is typically managed to have a stable duration, meaning the fund never matures. So think about if you had to sell shares before maturity; you risk selling at a loss. A loss of an unknown amount, but it's constrained by how much rates will rise and the fund's duration.

This risk of loss when selling before maturity exists with individual bonds, but at least with a ladder of individual bonds you can choose which bonds to sell if you had to. There is no such ability with a fund. That's a different kind of safety and it applies to any kind of fund, Treasury or otherwise.

Statistics: Posted by drspine — Wed Jan 08, 2025 5:04 pm — Replies 7 — Views 271