Schwab Short-Term U.S. Treasury ETF (ARCA: SCHO)

Latest news for Schwab Short-Term U.S. Treasury ETF (ARCA:SCHO)

Schwab Short-Term U.S. Treasury ETF

To pursue its goal, the fund generally invests in securities that are included in the Bloomberg US Treasury 1-3 Year Index. The index includes all publicly-issued U.S. Treasury securities that have a remaining maturity of greater than or equal to one year and less than three years, are rated investment grade, and have dollar 300 million or more of outstanding face value. The securities in the index must be denominated in U.S. dollars and must be fixed-rate and non-convertible. The index excludes U.S. Treasury stripped securities. The index is market capitalization weighted and the securities in the index are updated on the last business day of each month. As of December 31, 2023, there were 97 securities in the index.

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The U.S. Treasury is expected to confirm further increases in government bond supply in its first quarterly refunding announcement of 2024.

Treasury Glut: Can Investor Demand For US Bonds Keep Pace With Supply Increases?

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The U.S. Treasury is expected to confirm next Wednesday, Jan. 31, further increases in government bond supply in its first quarterly refunding announcement of 2024. But is demand sufficient for the government to auction the debt at top prices and comfortable yields?
Treasury <a href="https://www.benzinga.com/government/23/12/36206812/treasury-market-stress-primary-dealers-taking-up-slack-as-foreign-demand-fades">demand dropped off sharply</a> at the beginning of the final quarter in 2023 as top foreign buyers such as China and Japan focused their energies on their own debt in support of their capital markets and currencies.
At this point yields began to move higher, peaking in mid-October at above 5%. The benchmark 10-year yield peaked at 5.021% on Oct. 23.
Subsequently, as markets became aware that the Federal Reserve&#8217;s rate hike cycle had peaked, bond yields fell sharply. Demand for Treasuries began to return as hopes improved that an economic slowdown wouldn&#8217;t deteriorate into recession.
&#8220;Last fall, the U.S. Treasury market was dominated by one question: who will buy the bonds?,&#8221; said Mark Cabana, rates analyst at Bank of America. &#8220;At that time U.S. data was hot, Fed hikes were in play, term premium measures were rising, Treasury demand was tepid.&#8221;
<h2 class="wp-block-heading">Treasury Demand Returns</h2>
But what a difference a season makes. As fall turned into winter, demand for Treasuries improved.
&#8220;The shift in Treasury demand is fundamentally rooted in improved macro confidence and growing Fed rate cut expectations,&#8221; said Cabana. &#8220;And the January Treasury refunding announcement will not rock this boat.&#8221;
Treasury refunding is an important part of government financing. As Treasury bonds mature to their duration — whether that be two, five, 10 years etc. — the government must pay the bondholder the current market price value of the bond.
Billions of dollars worth of government debt expires like this every year and the government must issue more debt to pay it down.
Also Read: <a href="https://www.benzinga.com/analyst-ratings/analyst-color/24/01/36711044/time-to-buy-the-bond-dip-morgan-stanley-jpm-urge-investors-to-capitalize-on-treasur">Time To Buy The Bond Dip? Morgan Stanley, JPM Urge Investors To Capitalize On Treasury Notes Amid Recent Slump</a>
<h2 class="wp-block-heading">January Refunding</h2>
Cabana&#8217;s team at BofA believes the Treasury will deliver a repeat of the increase in auction sizes announced in November.
This saw increases in the two- and five-year Treasuries of $3 billion per month; the three-year by $2 billion per month and the seven-year by $1 billion a month.
It also increased both the new issue and the reopening auction size of the 10-year note by $2 billion and the 30-year bond by $1 billion. It maintained the 20-year bond new issue and reopening auction size.
Investors can track bond price movements through exchange-traded funds (ETFs). Prices move inversely to yields, so as Treasury yields have ticked a little higher at the start of the year, prices have eased.
The iShares U.S. Treasury Bond ETF (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/GOVT#NYSE">GOVT</a>), an ETF that tracks U.S. government bonds through the entire range of maturities, is down 1.5% so far this year.
<figure class="wp-block-image size-full"><img loading="lazy" decoding="async" width="750" height="650" src="https://editorial-assets.benzinga.com/wp-content/uploads/2024/01/25092042/newplot-47.png" alt="" class="wp-image-194095" srcset="https://editorial-assets.benzinga.com/wp-content/uploads/2024/01/25092042/newplot-47.png 750w,https://editorial-assets.benzinga.com/wp-content/uploads/2024/01/25092042/newplot-47-300x260.png 300w" sizes="(max-width: 750px) 100vw, 750px" /></figure>
Meanwhile, the Schwab Short-Term U.S. Treasury ETF (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/SCHO#NYSE">SCHO</a>), tracks U.S. government bonds between one and three-year maturities, and the Schwab Intermediate-Term U.S. Treasury ETF (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/SCHR#NYSE">SCHR</a>), tracks U.S. government bonds with durations of around five years.
Thus, with higher supply, can demand keep pace? So far it has, said Cabana.
&#8220;Overall, elevated Treasury supply concerns have not resulted in a consistent deterioration of auction performance,&#8221; he said, adding: &#8220;Improved Treasury demand can be observed across a wide range of investors, ranging from banks to pensions to foreign investors. Japanese banks have increased foreign bond buying, likely as more tactical trades.&#8221;
Treasury supply will remain a powerful consideration in the Treasury market for some time to come, as investors must also take into account twin deficits.
US deficits are still large and growing, which means that UST supply will remain heavy.
&#8220;We expect reduced macro uncertainty and Fed cuts will be supportive of Treasury demand in the near term. However, Treasury supply concerns are likely to resurface over time,&#8221; concluded Cabana.
Now Read: <a href="https://www.benzinga.com/government/23/12/36206812/treasury-market-stress-primary-dealers-taking-up-slack-as-foreign-demand-fades">Treasury Market Stress: Primary Dealers Taking Up Slack As Foreign Demand Fades</a>
Image: Shutterstock

As of July 16, Charles Schwab Corp. (NYSE: <a class="ticker" href="https://www.benzinga.com/stock/schw#NYSE">SCHW</a>) is the fifth-largest U.S. issuer of exchange traded funds with $145.71 billion in assets under management. It didn&#39;t get that way by offering a lot of funds.
<h3>What Happened</h3>
Schwab <a href="https://investorplace.com/2019/07/7-of-the-best-schwab-etfs-for-low-fees/">offers just 22 ETFs</a>, spanning equities and fixed income, but that number is poised to swell to 25 as the issuer looks to tap into surging demand for bond funds. According to a recent filing with the Securities and Exchange Commission, <a href="https://www.benzinga.com/money/charles-schwab-review/">Schwab </a>plans to launch new ETFs with exposure to corporate bonds and U.S. government debt.
Schwab&#39;s &ldquo;asset management arm is planning to start three new products focused on corporate bonds and Treasuries, almost doubling the number of debt exchange-traded funds it offers, regulatory filings show,&rdquo; <a href="https://www.newsmax.com/finance/investinganalysis/schwab-three-funds-etf/2019/07/17/id/924808/">reports Bloomberg</a>.
<h3>Why It&#39;s Important</h3>
Current Schwab bond ETFs include the Schwab U.S. Aggregate Bond ETF (NYSE: <a class="ticker" href="https://www.benzinga.com/stock/schz#NYSE">SCHZ</a>), Schwab U.S. TIPS ETF (NYSE: <a class="ticker" href="https://www.benzinga.com/stock/schp#NYSE">SCHP</a>), Schwab Short-Term U.S. Treasury ETF (NYSE: <a class="ticker" href="https://www.benzinga.com/stock/scho#NYSE">SCHO</a>) and the Schwab Intermediate-Term U.S. Treasury ETF (NYSE: <a class="ticker" href="https://www.benzinga.com/stock/schr#NYSE">SCHR</a>).
While those four funds are cost-effective and popular with investors, only SCHZ, and only in modest fashion, features exposure to any other than U.S. government debt. With demand for bond ETFs hitting record highs, Schwab is looking to fill some of its fixed income ETF voids with the Schwab Short-Term Corporate Bond ETF (SCHJ) and the Schwab Intermediate-Term Corporate Bond ETF (SCHI).
The other new bond ETF planned by Schwab is the Schwab Long-Term U.S. Treasury ETF (SCHQ). Competitors such as iShares, Vanguard, State Street and Invesco feature extensive bond ETF lineups including municipal bond funds, international debt offerings and more.
<h3>What&#39;s Next</h3>
If Schwab&#39;s precedent is a guide, the new ETFs will likely be among the least expensive in their respective categories, enabling the rookie funds to challenge established rivals out of the gate. The filing didn&#39;t mention plans for high-yield debt or municipal bond ETFs, which Schwab currently does not offer.
&ldquo;The decision marks a shift for Charles Schwab Investment Management, which has largely ridden its equity-fund offerings to become the fifth-largest ETF issuer in the U.S.More than 84% of the $146 billion in Schwab ETFs is invested in stocks,&rdquo; according to Bloomberg.
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Photo credit: <a href="https://www.flickr.com/photos/jeepersmedia/14763506934">Mike Mozart</a>, Flickr

Amid a more sanguine outlook for U.S. interest rates this year, investors are revisiting longer-dated bonds and the corresponding exchange traded funds.
That doesn&#39;t mean the short-duration funds, such as the Schwab Short-Term U.S. Treasury ETF (NYSE:SHCO) should be ignored.
<h3>What Happened</h3>
The $5.5 billion SCHO targets the Bloomberg Barclays U.S. Treasury 1-3 Year Index and holds 85 bonds with a weighted average maturity <a href="https://www.schwab.com/public/schwab/investing/investment_help/investment_research/etf_research/etfs.html?path=/Prospect/Research/etfs/summary.asp?symbol=SCHO">of 1.99 years</a>.
&ldquo;Indexing Treasuries in this way is a sound approach for exposure to a specific portion of the yield curve,&rdquo; said Morningstar <a href="https://www.morningstar.com/articles/920359/play-defense-with-this-treasury-etf.html">in a recent note</a>. &ldquo;It is difficult for active managers to recoup their fees while offering comparable exposure to Treasuries on this narrow segment of the yield curve, as Treasuries are one of the most competitively priced areas of the bond market and managers have little leeway to take additional duration risk.&rdquo;
<h3>Why It&#39;s Important</h3>
Credit risk typically isn&#39;t an issue with Treasury ETFs and with short-term interest rates expected to be held in check this year, SCHO, with a duration of 1.93 years, could provide a solid option for investors looking to capture some short-term income while protecting portfolios against potential equity shocks.
&ldquo;Ultrasafe investments, like short-term Treasuries, are an effective way to diversify an all-stock portfolio as they tend to hold up well during periods of market distress,&rdquo; said Morningstar.
What could be a near-term risk for SCHO and other fixed income ETFs is <a href="https://www.benzinga.com/news/19/03/13409817/major-us-yield-curve-inverts-for-first-time-since-2007">last Friday&#39;s albeit brief inversion of the yield curve</a>, when 10-year Treasury yields fell below the yield on three-month T-bills. Yield curve behavior can impact SCHO&#39;s ability to outperform long-dated bonds.
&ldquo;When the slope of the curve is gentle, the opportunity cost of investing in short-term Treasuries is low,&rdquo; according to Morningstar. &ldquo;But as the curve steepens, so does the potential opportunity cost. This ultrasafe portfolio provides strong downside protection because short-term Treasuries tend to act as a safe-haven asset during periods of distress.&rdquo;
<h3>What&#39;s Next</h3>
SCHO charges just 0.06 percent per year, or $6 on a $10,000 investment, putting it on the more favorable end of the bond ETF spectrum in terms of costs.
The fund has a 30-day SEC of 2.45 percent. Morningstar has a Silver rating on SCHO.
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Several of this year&#39;s top asset-gathering fixed income exchange traded funds are of the low or ultra-low duration varieties, indicating investors&#39; preference for bonds that are less sensitive to rising interest rates.
A new ETF courtesy of IndexIQ, a unit of New York Life Investments Company, seizes upon that theme.
<h3>What Happened</h3>
The IQ Short Duration Enhanced Core Bond U.S ETF (NYSE: <a class="ticker" href="https://www.benzinga.com/stock/sdag#NYSE">SDAG</a>) debuted Tuesday as <a href="https://www.benzinga.com/trading-ideas/long-ideas/18/12/12849931/indexiq-brings-a-new-look-to-international-equities">the second new ETF</a> introduced by IndexIQ over the past week. SDAG follows the IQ Short Duration Enhanced Core Bond U.S. Index, a benchmark comprised of other ETFs.
The fund is IndexIQ&#39;s first short duration ETF and its sixth fixed income ETF. IndexIQ launched its first bond ETF over two and a half years ago.
<h3>Why It&#39;s Important</h3>
The ETFs comprising SDAG&#39;s lineup include short-term Treasury funds, floating rate note products and short-term corporate bond ETFs. SDAG&#39;s largest holding is the Vanguard Short-Term Corporate Bond ETF (NASDAQ:VSCH). The $20.6 billion VCSH, which has an average duration of 2.7 years, commands 34.49 percent of SDAG&#39;s weight.
The Schwab Short-Term U.S. Treasury ETF (NYSE: <a class="ticker" href="https://www.benzinga.com/stock/scho#NYSE">SCHO</a>) is SDAG&#39;s second-largest holding at a weight of almost 28 percent. The $3.8 billion SCHO has an effective duration of 1.93 years.
&quot;After several years of abnormally low rates, we once again find ourselves in a rising rate environment, a situation where investors often move to the shorter end of the yield curve,&rdquo; said Index IQ Chief Investment Officer Salvatore Bruno <a href="https://www.nylinvestments.com/IQetfs/etfs/IQ-Short-Duration-Enhanced-Core-Bond-U.S.-ETF">in a statement.</a> &ldquo; By combining short duration exposure with a momentum-driven approach, investors now have a powerful tool for gaining exposure to this key area of the fixed income market while also adding the potential for outperformance.&rdquo;
<h3>What&#39;s Next</h3>
SDAG&#39;s holdings are dynamically allocated based on 45- and 90-day momentum signals. The new ETF can include short-term high-yield debt. Two of SDAG&#39;s eight holdings are short-duration junk bond funds. Those ETFs combine for nearly a quarter of SDAG&#39;s weight.
SDAG charges 0.36 percent per year, or $36 on a $10,000 investment.
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Discount broker Charles Schwab (NYSE: <a class="ticker" href="/stock/schw#NYSE">SCHW</a>), sponsor to some of the least expensive ETFs on the market, is making some of those funds even cheaper. In a filing with the <a href="http://www.sec.gov/Archives/edgar/data/1454889/000119312512398527/d403516d497.htm">Securities and Exchange Commission</a>, Schwab outlined fee cuts a wide array of its ETFs.

Among the Schwab funds with lower expense ratios will be two of the firm's most popular products. The Schwab U.S. Broad Market ETF (NYSE: <a class="ticker" href="/stock/schb#NYSE">SCHB</a>) will see its fee reduced to 0.04 percent per year from 0.06 percent. The annual expense ratio on the Schwab U.S. Large-Cap ETF (NYSE: <a class="ticker" href="/stock/schx#NYSE">SCHX</a>) goes to 0.04 percent from 0.08 percent. SCHB has $1.1 billion in assets under management while <a href="https://www.schwabetfs.com/summary.asp?symbol=SCHX">SCHX had $887.5 million in AUM at the end of August</a>.

The Schwab U.S. Large-Cap Growth ETF (NYSE: <a class="ticker" href="/stock/schg#NYSE">SCHG</a>), Schwab U.S. Large-Cap Value ETF (NYSE: <a class="ticker" href="/stock/schv#NYSE">SCHV</a>). Schwab U.S. REIT ETF (NYSE: <a class="ticker" href="/stock/schh#NYSE">SCHH</a>) and the Schwab U.S. Mid-Cap ETF (NYSE: <a class="ticker" href="/stock/schm#NYSE">SCHM</a>) will see annual fees reduced to 0.07 percent from 0.13 percent.

The Schwab U.S. Small-Cap ETF (NYSE: <a class="ticker" href="/stock/scha#NYSE">SCHA</a>) goes down three basis points to 0.1 percent from 0.13 percent. In the dividend space, Schwab slashed the expense ratio on the Schwab U.S. Dividend Equity ETF (NYSE: <a class="ticker" href="/stock/schd#NYSE">SCHD</a>) to 0.07 percent from 0.17 percent.

Schwab also reduced expenses on several of its international funds, including the Schwab International Equity ETF (NYSE: <a class="ticker" href="/stock/schf#NYSE">SCHF</a>), which is going to 0.09 percent from 0.13 percent. The Schwab International Small-Cap Equity ETF (NYSE: <a class="ticker" href="/stock/schc#NYSE">SCHC</a>) will now have an expense ratio of 0.2 percent down from 0.35 percent.

Interestingly, the Vanguard MSCI Emerging Markets ETF (NYSE: <a class="ticker" href="/stock/vwo#NYSE">VWO</a>) has lost the title of cheapest emerging markets ETF. That honor now goes to the Schwab Emerging Markets Equity ETF (NYSE: <a class="ticker" href="/stock/sche#NYSE">SCHE</a>), which will now charge 0.15 percent compared with 0.25 percent in the past.

Fees on the Schwab U.S. TIPS ETF (NYSE: <a class="ticker" href="/stock/schp#NYSE">SCHP</a>) were cut in half to 0.07 percent from 0.14 percent. The Schwab Short-Term U.S. Treasury ETF (NYSE: <a class="ticker" href="/stock/scho#NYSE">SCHO</a>) goes to 0.08 percent from 0.12 percent while the Schwab Intermediate-Term U.S. Treasury ETF (NYSE: <a class="ticker" href="/stock/schr#NYSE">SCHR</a>) will now charge 0.1 percent compared with 0.12 percent in the past.

The Schwab U.S. Aggregate Bond ETF (NYSE: <a class="ticker" href="/stock/schz#NYSE">SCHZ</a>) also cut its fees in half to 0.05 percent from 0.1 percent while the Schwab U.S. REIT ETF (NYSE: <a class="ticker" href="/stock/schh#NYSE">SCHH</a>) will now charge 0.07 percent, down from 0.13 percent. 

All that on top of the fact that Schwab offers all of its ETFs on a commission-free basis to its clients.

For more on ETFs, click <a href="http://www.benzinga.com/etfs">here</a>.

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Schwab Short-Term U.S. Treasury ETF

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Latest news for Schwab Short-Term U.S. Treasury ETF (ARCA:SCHO)

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