US Treasury Bonds & ETFs

A US Treasury bond is a debt security issued by the federal government to fund operations. Treasuries are backed by the full faith and credit of the United States and are considered among the lowest-risk fixed-income investments globally. Maturities range from 1-month bills to 30-year bonds.

They all hold US Treasuries but at different maturities. SHY tracks 1-3 year Treasuries (low duration, less price-sensitive to rate changes). IEF holds 7-10 year Treasuries (intermediate). TLT holds 20+ year Treasuries (highest duration, most sensitive to interest rate moves). Higher duration means larger price swings when yields change.

Bond prices and yields move inversely. When interest rates rise, newly issued Treasuries pay higher coupons, making existing bonds less attractive. The market discounts those older bonds until their effective yield matches new issues — so the price drops. TLT, holding the longest-dated bonds, has the largest duration and the largest price reaction.

Standard Treasury ETFs (TLT, IEF, SHY) are NOT inflation-protected — they hold nominal bonds. For inflation protection, use TIPS ETFs like TIP or VTIP, which hold Treasury Inflation-Protected Securities whose principal adjusts with CPI.

Interest from US Treasuries is exempt from state and local income tax (federal tax still applies). Treasury ETF distributions inherit that treatment — the portion attributable to Treasury interest is generally state-tax-free for US investors. Capital gains from selling the ETF are taxed normally.