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The U.S. national debt has become a hot topic as the government continues to spend more than it receives. The debt now stands at a staggering $34 trillion, and interest payments alone eat up a significant portion of the budget. In fact, the US is paying her a whopping $2.9 billion in interest per day. recent data. This astronomical number is directly related to the current high interest rate environment, with the Federal Reserve signaling that interest rates will remain high for an extended period of time to combat inflation.
As governments issue Treasury bonds, bills, and paper money to finance their debts, investors receive these high interest payments. While some may view ballooning national debt as a cause for concern, smart investors see it as an opportunity to generate income for their portfolios.
Government bond ETFs to consider
For individual investors looking to take advantage of high interest rates and earn a slice of billions of dollars in daily payments, Treasury ETFs offer a simple and accessible solution. These ETFs hold a basket of U.S. Treasury securities, providing exposure to a variety of maturities and strategies. Here are four Treasury ETFs to consider. Each has its own approach.
Schwab Short-Term Treasury ETF (show)
The Schwab Short-Term U.S. Treasury Bond ETF tracks the total return of the short-term U.S. Treasury market, focusing on securities with a remaining maturity of one to three years. This ETF is an excellent choice for investors who prioritize capital preservation and liquidity.
With an ultra-low expense ratio of just 0.03%, SCHO is one of the most cost-effective options in this category. The fund's short-term focus means lower interest rate risk compared to medium- to long-term U.S. Treasury ETFs. However, this also means that the yield may be lower than with longer terms.
Vanguard Medium-Term Government Bond ETF (VGIT)
The Vanguard Intermediate-Term Treasury ETF is an attractive option for investors seeking a balance between yield and interest rate risk. VGIT tracks the Bloomberg U.S. Treasury 3-10 Year Bond Index and provides exposure to U.S. Treasuries with remaining maturities of 3-10 years.
Because ETFs focus on the medium term, they can offer higher yields compared to short-term funds like SCHO. However, it is important to note that this comes with increased interest rate risk, as intermediate term bond prices are more sensitive to changes in interest rates. VGIT's expense ratio is highly competitive at his 0.04%, ensuring that much of the fund's income goes into investors' pockets.
iShares 20+ Years Government Bond ETF (TLT)
For those looking to take on more interest rate risk in exchange for potentially higher yields, the iShares 20+ Year Treasury ETF is worth considering. TLT tracks an index comprised of U.S. Treasury securities with a remaining maturity of more than 20 years, providing targeted exposure to the long end of the yield curve.
Because of their long duration, ETFs are highly sensitive to changes in interest rates, which can cause their prices to be more volatile than funds with shorter durations. However, TLT also offers the highest potential yield of any of the ETFs discussed here. Additionally, long-term government bonds also act as a hedge against inflation, as their prices tend to rise when inflation expectations decline.
iShares Core U.S. Aggregate Bond ETF (AGG)
Investors looking for a more diversified approach to fixed income investing should consider the iShares Core U.S. Aggregate Bond ETF. AGG tracks the Bloomberg U.S. Aggregate Bond Index, providing broad exposure to the U.S. investment-grade fixed income market, including U.S. Treasuries, corporate bonds, and mortgage-backed securities.
Although AGG is not a pure government bond ETF, the fund's heavy allocation to government bonds means it still provides exposure to a high interest rate environment. While diversifying an ETF across fixed income sectors and issuers can reduce risk, it is important to note that the inclusion of corporate bonds increases credit risk compared to a portfolio of only government-backed securities.
Things to consider
There are several important factors to keep in mind when deciding which Treasury ETF to invest in.
Your financial goals: Do you prioritize current returns, capital preservation, or a balance between the two? Your answers will help you decide which maturity range and ETF strategy best suits your objectives.
Your risk tolerance: All Treasury ETFs provide exposure to high-quality government bonds, but those with longer durations come with increased interest rate risk. Before investing, be sure to evaluate your comfort level in light of potential price fluctuations.
Expense ratio: All of the ETFs mentioned here boast low expense ratios, but even small differences in fees can add up over time. When making your selection, consider the impact your expenses will have on your total profit.
With the U.S. government spending billions of dollars per day on interest payments, government bond ETFs offer investors a way to benefit from the current high interest rate environment. These funds help income-oriented investors cash in on high levels of government spending by providing exposure to various segments of the government bond market.
However, while Treasury ETFs can play a valuable role in a diversified portfolio, it's important to remember that over the long term they may offer lower total return potential compared to equity ETFs. is. As with any investment decision, it's important to consider your individual circumstances, including your risk tolerance, time horizon, and overall financial plan. You should consult your financial advisor to determine whether treasury ETFs are appropriate for your situation.
Investors should also note that ETF structures come with unique considerations, including transaction costs and potential premiums or discounts to net asset value. Additionally, the tax implications of investing in Treasury ETFs may vary depending on your situation.
Ultimately, understanding the unique characteristics and risks associated with national bond ETFs can help investors make informed decisions, and the amount of money paid each day by the U.S. government to corporate bond holders. You could potentially benefit from billions in interest payments.
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This article The US pays $2.9 billion in interest per day, and these ETFs can help you earn some of it originally appeared Benzinga.com