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Vanguard Short-Term Treasury ETF Offers Safety But With A Low Yield

Ploutos Investing profile picture
Ploutos Investing


  • VGSH invests in U.S. short-term treasuries.
  • The fund has very little credit risk as all of the bonds are backed by the full faith and credit of the U.S. government.
  • VGSH also has little interest rate risk as most of the funds in its portfolio will mature between 1 and 3 years.
  • However, investors will only receive an average yield to maturity of only 0.2%.

ETF Overview

Vanguard Short-Term Treasury ETF (NASDAQ:VGSH) focuses on short-term investment-grade bonds in the United States. VGSH has very low credit risk as its portfolio of U.S. treasuries are backed by the full faith and credit of the U.S. government. It also has a very low interest-rate risk due to its short average duration to maturity years. However, its yield to maturity of 0.2% is low and hence it will not be suitable for investors who want higher yields.

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Fund Analysis

If safety is your number 1 concern, VGSH meets this criterion

For investors who want safety, VGSH may be a good choice for you. The name of the fund, Vanguard Short-Term Treasury ETF, means that its portfolio of bonds is all U.S. treasuries. This is probably one of the safest bonds to hold on earth right now as they have superior credit ratings. Since the formation of the U.S. government in 1776, the U.S. Treasury has never failed its lenders. In a post-COVID-19 world where many other emerging markets are still struggling to contain the virus, treasuries backed by the full faith and credit of the U.S. government should be extremely safe.

Source: Vanguard Website

VGSH’s low average effective maturity year means interest rate risk is low

VGSH tracks the Bloomberg Barclays U.S. Treasury 1-3 Year Index. This index includes U.S. treasuries that will mature between 1 and 3 years (see table below). In fact, its average effective maturity year is about 2 years.

Source: Vanguard Website

We know that some bonds have very long maturity years such as 20-year U.S. treasuries. Therefore, VGSH’s average effective maturity of 2 years is short. This short effective maturity is advantageous especially if you are concerned about rising interest rates in the future. Unlike long-term bonds, short-term bonds are less sensitive to the change of

This article was written by

Ploutos Investing profile picture
I am a value focused investor. Stocks rise and fall for many different reasons that we often cannot predict. Eventually, it is those companies with a wide moat and the ability to generate cash flow that prevail. Therefore, my investment focus is to find value stocks that are able to generate cash flow, with sustainable dividends and provide growth over time. I focus my attention on analyzing large-capped dividend growth stocks, REITs and ETFs. I aim at providing a quarterly update and insights on stocks I follow. Please feel free to browse the articles that I wrote and provide any comments.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within 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.

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Comments (11)

Not so safe...the fund was recently invested in 16-18% mortgage and agency backed securities.Backed by the full faith and credit of Vanguard?

“The fund’s principal allocation continued to be to nominal Treasuries. Outside this allocation, the advisor saw better valuation opportunities in out-of-benchmark sectors. As a result, the fund held approximately 16% in agency MBS and 2% in agency securities at quarter-end.
For the 12 months ended December 31, the short end of the Treasury yield curve rallied, led by Treasury bills. The 3-month yield declined 149 basis points, the 2-year yield declined 145 basis points, and the 5-year yield declined 133 basis points. In this environment, the fund underperformed its benchmark (+4.38%). Performance was hindered primarily by the fund’s structurally shorter duration, while allocations to agency MBS and Treasury inflation-protected securities contributed positively.”
whats the yield currently?
kos47 profile picture
I think the yield for VGSH is 1.92%. I’m I missing something?
I had the same question. Based on the last monthly dividend declared by Vanguard in May (see below), the current annualized yield is 1.19%.

Ploutos Investing profile picture
Hello, the yield i am referring to is "yield to maturity" not the yield based on the last monthly dividend.
Thanks for the reply. So in other words, 0.2% is the average yield to maturity of the bonds currently held by the fund?
Thanks. Basically all my cash in VGST, 57%. This info for me is very actionable. Till 8 months back 100% equities all the time.
u mean vgsh, right?
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