Vanguard recently released an that in “First Quarter 2025” they will be releasing two new index ETFs that both hold short-term US Treasury Bonds:
- Vanguard 0-3 Month Treasury Bill ETF (VBIL). Holds Treasuries with maturities of 3 months or less. Estimated expense ratio of 0.07%.
- Vanguard Ultra-Short Treasury ETF (VGUS). Holds Treasuries with maturities of less than 12 months. Estimated expense ratio of 0.07%.
Currently, I would say the two best options for those who want low-cost exposure to Treasury Bills as a cash alternative without having to manually manage their own T-Bill ladder are:
- iShares 0-3 Month Treasury Bond ETF (). Holds Treasuries with maturities of 3 months or less (1.2 months weighted average as of 12/2024). Expense ratio of 0.09%. 30-day historical median bid/ask spread of 0.01%. Can be bought and sold at nearly any brokerage.
- Vanguard Treasury Money Market Fund (). Maintains a NAV of $1. Holds Treasuries with average maturity of 38 days (as of 10/31/24). Expense ratio of 0.09%. Usually must be bought and sold within a Vanguard brokerage accounts to avoid transaction fees.
The advantages of owning properly-managed T-Bill funds are that you hopefully maintain the state income tax exemption of T-Bill interest, while adding the convenience and easy liquidity of ETFs and mutual funds. T-Bills often give residents of states with high local/state income taxes the highest tax-equivalent yield available for a cash equivalent (minimal volatility, minimal principal risk).
For tax year 2023, SGOV reported of interest was derived from qualified U.S. Government and agency obligations. In many states, this meant that 96.45% of the interest paid out was exempt from state and local income taxes.
For tax year 2023, VUSXX reported of interest was derived from qualified U.S. Government and agency obligations. In many states, this means that 80.06% of the interest paid out was exempt from state and local income taxes.
Ideally, VBIL will be very similar to SGOV with a tight bid/ask spread and nearly all interest eligible for state income tax exemption, but with even lower expenses and thus higher net yields. Something to keep a look out for in early 2025.
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