The fact that US 10-year government bonds are at the highest level since 2007 is old news. The real question is how do we access that return for South African investors.
The problem is that while the US does have an equivalent of our RSA Retail Savings Bonds they’re not avaliable for non-US residents and citizens, so we need to look to ETFs.
There is however a problem here. With he RSA Retail Savings Bonds we are buying in the primary market, that is direct from the government and as long as we hold for the duration we get the promised interest rate and our capital back.
But an ETF is buying in the secondary market so there is a risk of capital. As yields (rates) rise the value of the bond decreases. This decrease should offset by the increase in yield but there remains a risk.
Another important point is that the US 10-year yield is currently around 4.8%, way lower than what we can get locally, but of course it is in US$.
A last point is that while the 10-year is around 4.8% the yields on an ETF may differ depending what bonds they actually hold.
With all the above we went hunting for US listed and ETFs. The GOVT from iShares looks good, but capital loss has been real and the one-year total return (including dividends) ends up at -0.2%. TLT also from iShares has a one-year total return of -10%, neither attractive.
But then we found the State Street Global Advisors short dated and ETF, NYSE code: BIL. This invests into US government bonds with maturity of 1-3 months, so very short dated. It pays monthly distributions and has pretty much zero capital appreciation over the past year but has at time seen capital gain or loss. It has a yield of ± 4.8% (paying monthly dividends) and a TER of 0.1354%.
What is important with this ETF is that it is “less exposed to fluctuations in interest rates than longer duration securities”. But we have seen the distributions increase from US$0.155 to US$0.394 due to the rapid rate increase in the US.
BIL ETF dividend payments
| ETF name | SPDR® Bloomberg 1-3 Month T-Bill ETF |
| NYSE code | BIL |
| ETF issuer | State Street Global Advisors |
| Issue date | 25 May 2007 |
| Total investment cost | 0.1354% |
| ETF Benchmark | Bloomberg 1-3 Month U.S. Treasury Bill Index |
| Tax-free savings account | NO |
| Market cap | $33.54billion |
| Total return 1 year | +4.52% |
| Total return annualised 3 years | +1.6% |
| Total return annualised 5 years | +1.55% |
| Total return annualised 10 years | +0.95% |
| Dividend yield | 4.36% |
ETF blog
At Just One Lap, we are big fans of passive investment using ETFs. In this weekly blog, we discuss ETFs on the local market and the factors you need to consider when choosing an ETF. If you have wondered how one ETF differs from another, this is where you can find out. We explain which index each ETF tracks, what type of portfolio could benefit from holding each ETF, and how the costs will affect your bottom line.