State Street Global Launches a Handful of Fixed Income ETFs

State Street Global Advisors (SSgA) will launch five new fixed income exchange traded funds onto the American Stock Exchange on Wednesday, May 30, as the fixed income ETF market continues to heat up.

At the start of this year, Barclays Global Investors [BGI] was the only company to offer fixed income ETFs, providing just five funds. Since January 1, BGI has launched eleven new fixed income ETFs; Vanguard has added four funds of its own; and Ameristock Funds has registered for its own line-up of fixed income ETFs.

Now, SSgA is jumping into the mix, with a line-up that focuses primarily on Treasuries. The five new SSgA funds are:

Of all the new funds, the most interesting may be the 1-3 month T-Bill fund (BIL). Short-term bond ETFs have been a surprise hit with investors. The iShares Lehman Short Treasury Bond Fund (SHV), for instance, has been far-and-away the fastest growing of the new iShares fixed income ETFs, pulling in nearly $200 million in assets in its first four months on the market, compared to just $20-$40 million for most of the other funds. The same is true of the Vanguard Short-Term Bond ETF (BSV), which has outpaced the other Vanguard bond ETFs, pulling in $120 million since launch.

Common sense suggests that much of this money comes from mutual funds and other holders looking for a quick and liquid way to park cash. With that in mind, what’s interesting about the new SSgA fund is that it is the shortest duration bond ETF on the market: the fund only holds Treasuries with durations of one to three months, compared to 1-12 for BGI’s SHV, and 1-5 years for Vanguard’s BSV.

Will investors search out the short-term access? OR will they be satisfied with the longer-term exposure offered by the Vanguard and SSgA funds. It remains to be seen.

SSgA has taken a middle road with its price points on these ETFs: the funds are substantially cheaper than the BGI fixed income products, but more expensive than the 11 basis points (0.11%) charged by cost-leader Vanguard.

Comments

[Frank Li]

Perhaps one reason why the short term bond ETFs have been so popular is that brokerages offer lousy interest rates on uninvested cash in brokerage accounts. So if you park the money in an ETF you do much better.

[Ralph F]

The ticker symbol for the 1-3 month Treasury ETF -- BIL -- is fantastic. Maybe that will outweigh the higher than Vanguard expense ratio. Look how big an impact the GLD ticker had over Barclay's IAU.

Separately, I wonder whether Barclays will have to cut the expense ratio on its bond ETFs in reaction to State Street and Vanguard.