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SHY: Short-Term Treasuries Can Keep Moving Higher

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Nexus Research


  • The SHY ETF has rallied by about 1% since November 2018, and is likely to keep moving higher.
  • The economic outlook continues to remain dull, which is inhibiting the Fed from tightening further.
  • The probabilities of a rate hike are falling, and chances of rate cuts are increasing.

The iShares 1-3 Year Treasury Bond ETF (NASDAQ:SHY) is up 1% since November 2018 (capital gains on treasury related securities are usually relative small). The ETF currently also has a yield of 1.72%. While its price performance had been under pressure last year amid a hawkish Fed, the ETF has been turning around amid an increasingly dovish Fed, which is pushing yields lower, and short-term treasury prices higher. In fact, this trend is likely to continue going forward this year.

Source: Yahoo Finance

Prospectus Review:

The SHY ETF has an objective to provide investors with exposure to the ‘front end’ of the yield curve, by tracking the ICE U.S. Treasury 1-3 Year Bond Index. More specifically, the fund holds US treasuries with maturities between one year and 3 years. This makes the ETF a good investment/ trading vehicle for those who are want to bet on near term interest rate decisions by the US Federal Reserve.

The top 10 holdings of the fund include:

Source: ishares.com

Risk Note from SHY prospectus:

There is no guarantee that the Fund’s investment results will have a high degree of correlation to those of the Underlying Index or that the Fund will achieve its investment objective. Market disruptions and regulatory restrictions could have an adverse effect on the Fund’s ability to adjust its exposure to the required levels in order to track the underlying index.

The data below from ishares website reflects the tracking differences between the SHY ETF and the underlying benchmark:

Source: ishares.com

The reason I have chosen this ETF is because its strategy involves offering exposure to shorter-term bonds only that are likely to react sensitively to near term interest rate moves by the Fed. Given that the Fed’s near term moves are highly followed at the moment in anticipation of more

This article was written by

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Striving to uncover long-term investment opportunities (10+ years) through in-depth research and analysis. Nexus Research seeks to evaluate and compare business strategies to determine a company’s potential for market penetration, revenue growth and profit margin expansion. During market downturns, stocks often become cheap very fast, creating various investment opportunities at once. Amid such circumstances, investors often lack the time to research a company thoroughly before making investment decisions, out of fear that they will miss out on attractive entry points. Therefore, Nexus Research not only uncovers present-day buying opportunities, but also offers extensive insights on solid companies with promising growth potential despite expensive valuations, thereby allowing investors to be ready and make well-informed investment decisions when the stock becomes more reasonably valued.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in SHY over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (1)

keltus 1952 profile picture
Am holding SCHO, a Schwab ETF similar to SHY. Low fees and it pays monthly.
Am also holding BIL. This ETF is basically like a money market fund that holds short term Treasury bills. I need it at TD Ameritrade as they don't offer a decent MM fund. BIL also pays monthly and has a very small annual fluctuation range, well under 1%....................Kel
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