Schwab Intermediate-Term U.S. Treasury ETF (ARCA: SCHR)

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Schwab Intermediate-Term U.S. Treasury ETF

To pursue its goal, the fund generally invests in securities that are included in the Bloomberg US Treasury 3-10 Year Index. The index includes all publicly issued U.S. Treasury securities that have a remaining maturity of greater than or equal to three years and less than ten 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 108 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>
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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

Flows to exchange traded funds in 2018 are unlikely to approach the record $450 billion seen last year. This year&#39;s ETF inflows totals will likely be on par with or slightly exceed the $200 billion seen from 2014 through 2016.
Two issuers &ndash; BlackRock Inc.&#39;s (NYSE: <a class="ticker" href="https://www.benzinga.com/stock/blk#NYSE">BLK</a>) iShares unit and Vanguard &ndash; remain perched atop the flows leaderboard.
<h3>What To Know</h3>
&ldquo;iShares and Vanguard remain the top-two industry heavyweights and had gathered 73% of net inflows in the first ten months of 2018 according to data on ETF.com, above their 64% market share,&rdquo; said <a href="https://newpublic.cfraresearch.com/">CFRA Research </a>Director of ETF &amp; Mutual Fund Research Todd Rosenbluth in a note out Monday.
Year-to-date, as of Nov. 9, six of the top 10 ETFs in terms of new assets added are iShares funds while the other four are Vanguard funds. Among the 10 worst ETFs for assets lost this year, six are iShares funds, but no Vanguard products are found on that list.
<h3>Why It&#39;s Important</h3>
Along with State Street Corp.&#39;s (NYSE: <a class="ticker" href="https://www.benzinga.com/stock/stt#NYSE">STT</a>) SPDR brand, iShares and Vanguard make up the &ldquo;big three&rdquo; of the ETF universe, but other players are gaining momentum. Issuers on the rise include Charles Schwab Corp. (NYSE: <a class="ticker" href="https://www.benzinga.com/stock/schw#NYSE">SCHW</a>) and JPMorgan Chase &amp; Co.&#39;s (NYSE: <a class="ticker" href="https://www.benzinga.com/stock/jpm#NYSE">JPM</a>) JPMorgan Asset Management (JPAM) unit.
&ldquo;At Schwab, the $24 billion of net inflows thus far have positioned the industry&rsquo;s number five provider to match or exceed its $28 billion of new money a year ago,&rdquo; said Rosenbluth. &ldquo;Yet the share of net inflows is more than double that of its total asset base. Like at iShares and Vanguard, bond ETFs have been a major driver.&rdquo;
Fixed income products, such as the Schwab US TIPS ETF (NYSE: <a class="ticker" href="https://www.benzinga.com/stock/schp#NYSE">SCHP</a>) and the Schwab Intermediate-Term US Treasury ETF (NYSE: <a class="ticker" href="https://www.benzinga.com/stock/schr#NYSE">SCHR</a>), are among the drivers of Schwab&#39;s 2018 ETF asset growth.
JPAM is now the eleventh-largest U.S. ETF sponsor and $11 billion of its $16 billion in ETF assets under management have flowed in this year, according to Rosenbluth.
<h3>What&#39;s Next</h3>
Investors looking to participate in ETF industry growth on a more granular level can consider the ETF Industry Exposure and Financial Services ETF (NYSE: <a class="ticker" href="https://www.benzinga.com/stock/tetf#NYSE">TETF</a>). TETF, which tracks the Toroso ETF Industry Index, is home to ETF issuers, market markets, index providers and other public companies with roles in the ETF business. TETF holds shares of BlackRock and Schwab, among other ETF-related firms.
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Detroit's Quicken Loans reported record business in 2016. The company delivered $7 billion in mortgage funding via its online platform and closed a total of $96 billion in loans on the year, making it the second-largest mortgage lender in the country in 2016.
Quicken kicked off 2016 with its first-ever Super Bowl ad for Rocket Mortgages, a marketing campaign that seems to have generated a lot of positive momentum for the company.
<h3>Rocket Mortgage</h3>
"Rocket Mortgage has forever change[d] the way people think about getting a mortgage," CEO Jay Farmer said. "The product has been a success in so many ways, including its strong appeal to first-time homebuyers and the ability to remove the intimidating and cumbersome aspects of the traditional mortgage process."
<h3>Profiling Rocket Mortgage Users</h3>
Quicken reports 80 percent of its Rocket Mortgage customers who used the loans to finance a home purchase were first-time buyers. Many of these Rocket Mortgage borrowers were millennials, who preferred Quicken's highly-automated and transparent lending process.
To determine whether customers qualify for a Rocket Mortgage, Quicken uses a digital verification service that includes assessment of the borrower's income, credit, assets and property valuations. The digital verification process allows many Quicken borrowers to eliminate the paperwork from the process altogether. In addition, Quicken reports that mortgage loans close 12 days faster than the industry average.
After Quicken's record-breaking 2016, the company has now closed more than $300 billion of mortgage volume since 2013.
Related Link: <a href="https://www.benzinga.com/news/17/02/9082999/dan-gilbert-has-a-huge-vision-for-detroits-old-hudsons-site-the-citys-tallest-bui">Dan Gilbert Has A Huge Vision For Detroit's Old Hudson's Site: The City's Tallest Building</a> 
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In November 2014, the S&amp;P Dow Jones Indices and MSCI, two of the largest providers of benchmarks for exchange-traded funds, said real estate would become the eleventh Global Industry Classification Standard (GICS) sector in August 2016.
<h3>And REIT Makes 11</h3>
Although that announcement is now a year-and-a-half old, there is still expected to be some benefit for real estate stocks and exchange-traded funds when real state officially becomes its own sector on August 31. That is good news for ETFs such as the Vanguard REIT Index Fund (NYSE: <a class="ticker" href="/stock/vnq#NYSE">VNQ</a>), the largest real estate ETF, and rivals such as the iShares Dow Jones US Real Estate (ETF) (NYSE: <a class="ticker" href="/stock/iyr#NYSE">IYR</a>) and the Schwab Dow Jones U.S. REIT Index ETF (Schwab Strategic Trust (NYSE: <a class="ticker" href="/stock/schr#NYSE">SCHR</a>)).
<bzrelatedlink>Related Link: <a href="http://www.benzinga.com/news/16/05/8027217/another-fed-test-for-utilities-etfs">Another Fed Test For Utilities ETFs</a></bzrelatedlink>
The shift of real estate stocks to separate sector status is expected to prompt massive buying from managers of actively managed mutual, which perhaps ironically, will benefit the biggest thorns in their sides: passively managed ETFs.
<h3>Is There Still Upside To Come?</h3>
&ldquo;Almost 40 percent of large-cap core fund managers has no exposure to Real Estate stocks within their portfolios, which inflates the overall industry underweight [...] 44 percent of each large-cap growth and large-cap value funds and 31 percent of multi-cap core funds also held no Real Estate positions,&rdquo; according to excerpts of a Goldman Sachs note posted by <a href="http://blogs.barrons.com/focusonfunds/2016/05/24/goldman-index-changes-could-result-in-19b-of-reit-buying/">Barron&#39;s</a>. &ldquo;We expect funds with no Real Estate exposure will drive the majority of flows into Real Estate stocks once the new Real Estate sector is formed. Funds with no exposure may be more inclined to add Real Estate stocks to their portfolios and take a directional view on the newly formed Real Estate sector vs. their benchmark.&rdquo;
<h3>A Few Names To Watch</h3>
Barron&#39;s adds the REIT buying could be as high as $19 billion when real estate becomes its own sector at the end of August. That is welcome news for ETFs like VNQ and IYR, which are up an average of 5 percent year-to-date.
REITs and the corresponding ETFs are sensitive to interest rates and with the Federal Reserve eyeing a June rate hike, these funds could be pinched in the near-term. However, investors may be able to overlook one small rate hike when they know massive buying of REIT ETFs&#39; components is coming in August.
&ldquo;According to Howard Silverblatt, an index analyst with S&amp;P Dow Jones Indices, on a pro-forma basis as of March 8, the elevation of REITs within the S&amp;P 500 index would create a sector sporting an above-average dividend yield of 3.5 percent, third behind telecom services and utilities. Meanwhile the financials sector&#39;s yield of 2.3 percent would decline to 2.0 percent,&rdquo; said <a href="http://trymsatoday.com/">S&amp;P Capital IQ</a> in a note out earlier this year.

REIT

More Help Coming For REIT ETFs

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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