Vanguard T-Bill/Ultra-Short Treasury ETF, iShares Money Market ETFs Now Live

Vanguard’s new index ETFs that hold short-term US Treasury Bonds are now live (press release).

• Vanguard 0-3 Month Treasury Bill ETF (VBIL). Tracks the Bloomberg US Treasury Bills 0-3 Months Index, which holds T-Bills with maturities of 3 months or less. Expense ratio of 0.07%.
• Vanguard Ultra-Short Treasury ETF (VGUS). Tracks the Bloomberg Short Treasury Index, which includes U.S. Treasury Bills, Notes, and Bonds with less than 12 months until maturity. Expense ratio of 0.07%.

Both are the lowest-cost ETF in their respective categories. As a result, I expect they will grow to be popular as now you can access low-cost cash from Vanguard without opening a brokerage account at Vanguard.

For now though, they’ve only been around for several days, so the volume is still relatively low and the bid/ask spreads are relatively high. For now, I am keeping my current favorite cash ETF holding: iShares 0-3 Month Treasury Bond ETF (SGOV) with an expense ratio of 0.09%, close enough for now.

This ETF.com article points out that this is a growing sector for ETFs, with iShares also launching two of the earliest money market ETFs this month:

• iShares Prime Money Market ETF (PMMF). Actively managed money market ETF. Expense ratio of 0.20%.
• iShares Government Money Market ETF (GMMF). Actively managed money market ETF. Expense ratio of 0.20%.

These ETFs do not hold only US Treasuries, but instead hold a basket of cash-equivalents that satisfy the strict SEC money market rules under Rule 2a-7 that help to ensure both safety of principal and liquidity in times of market stress. However, this covers a variety of “safe” stuff besides Treasuries so the interest paid out may not be exempt of state and local income taxes. The “Government” money market is more likely to have a higher percentage that qualifies, but when I looked at their holdings there are a lot of various swaps and/or derivatives that probably don’t count as US government obligation interest.

Anyway, interesting that you can buy money market funds as ETFs now. If they are successful, I don’t see why Vanguard wouldn’t enter this sector as well. I’m confident they could beat those expense ratios.