1. What are SGOV, BIL, and SHV buying, exactly?

SGOV, BIL, and SHV are all ETFs that primarily invest in U.S. Treasury securities, but their holding periods differ. SGOV mainly holds U.S. Treasury securities with a remaining maturity of 0 to 3 months, BIL primarily holds Treasury bills with a maturity of 1 to 3 months, and SHV focuses on short-term U.S. Treasury securities with maturities of 0 to 1 year. All three share the characteristic of having a short duration, making them less sensitive to interest rate changes compared to long-term Treasury bond ETFs; the main differences lie in holding period, portfolio duration, and management fees.

To understand these types of products, one must first comprehend how U.S. Treasury bills generate yield. Unlike regular coupon-bearing Treasury bonds, Treasury bills usually do not pay periodic coupon interest but are issued at a price below par, redeemable at par value upon maturity. The difference between the purchase price and the maturity value constitutes the interest income for investors. For example, if an investor buys a three-month Treasury bill with a face value of $100 for $99.50, they will receive $100 at maturity, and the $0.50 difference represents the income from this investment, equivalent to an annualized yield of approximately 2% (not accounting for transaction costs and other factors).

After a fund purchases a basket of Treasury bills, it will gradually earn the corresponding income from these bonds during the holding period. As the expiration date approaches, the bond prices will gradually approach par value, and the related income will reflect in the fund's assets, which will then be distributed to holders through the fund's distribution mechanism. Therefore, the goal of holding SGOV is to generate interest income from the basket of short-term Treasury bills during the holding period; waiting for a significant price increase of any specific bond does not contribute to the income from this type of product.

SGOV and BIL primarily focus on short-term Treasury bills, allowing the fund to quickly recover principal after bonds mature and reinvest in new securities. SHV covers a slightly longer period, therefore it is usually more sensitive to interest rate changes. It is essential to distinguish between two concepts here. The range of holding periods denoted by the product does not represent the actual remaining maturity of every bond in the portfolio, nor does it equal the fund's effective duration. The effective duration and similar metrics truly measure the fund's sensitivity to changes in interest rates.

Taking SGOV as an example, as of October 30, its total assets were approximately $116.8 billion, making it one of the larger ultra-short-term U.S. Treasury ETFs, distributing earnings monthly. By purchasing SGOV, investors effectively hold a basket of short-term U.S. Treasuries through the ETF, thus receiving interest income generated by these bonds. For temporarily idle U.S. dollars, SGOV offers a way to participate in the short-term Treasury market's income, and pursuing a rise in bond prices is not its primary investment goal.

Compared to other common U.S. dollar cash instruments, SGOV's features are quite clear. Directly purchasing Treasury bills allows one to hold a single bond until maturity, knowing its maturity payout amount in advance, but transactions must be completed through auctions or the secondary market, and one must arrange for the reinvestment of matured funds. Bank deposit rates are quoted by the bank, with time deposits typically locking in rates for an agreed period, but they offer relatively low flexibility. Money market funds may have underlying assets and yield mechanisms similar to short-term Treasury funds, yet the specific holdings, redemption rules, and risks differ. SGOV, traded on the exchange through an ETF, allows investors to buy and sell in shares without the need to manage the maturity and rollover of Treasury bills on a per-transaction basis. The trade-off is that the fund's net asset value will still fluctuate with market changes, and returns are not guaranteed to be fixed. Choosing this kind of ETF essentially involves trading off the convenience of transaction and position management for a market-based floating yield.

2. Why, when the Federal Reserve raises interest rates, does SGOV's net value hardly decline?

SGOV's net value remains relatively stable primarily due to its very short duration. The shorter the duration, the smaller the impact on the prices of bonds already owned when market interest rates rise. Bond prices usually change inversely in relation to market interest rates, but how much the prices fall depends not only on how much rates have risen but also on the bonds' duration. Long-term bonds have cash flows distributed over a longer period, making them more sensitive to rate changes. Short-term Treasury bills mature quickly, causing prices to react much less to interest rate fluctuations.

For example, the long-term Treasury ETF TLT has an effective duration of about 16 to 17 years. According to Yahoo Finance's analysis in September 2026, under unchanged conditions, if the long-term bond yield rises by 1 percentage point, TLT's price could drop by approximately 16%. In contrast, SGOV's effective duration is about 0.09 years. Assuming the market yields rise by 1 percentage point, the estimated price impact on SGOV would be about 0.09%. This is merely an approximate estimate of interest rate sensitivity and does not imply that the fund's actual net value will change by exactly that magnitude.

The role of duration can be understood through the cash flows of bonds. For long-term bonds, the principal often does not get repaid until many years later, with investors having to wait for coupon income in the meantime. After market interest rates rise, these future cash flows need to be re-calculated to present value at a higher discount rate; cash flows that are further away tend to have a more significant discounting effect, which causes long-term bond prices to fall noticeably. In contrast, the Treasury bills held by SGOV mature within a few months, allowing the fund to quickly recover principal and purchase new bonds based on the current market rates. Although existing holdings remain affected by changes in interest rates, the impact is limited, and the fund can quickly update its holdings. By comparison, long-term Treasury ETF's bonds have longer durations, and the existing low-yield bonds cannot be quickly replaced, necessitating market price declines to adjust yield.

The market performance in 2022 illustrates the differences between the two more clearly. That year, the Federal Reserve rapidly raised the policy rate from nearly zero to over 4%, with the total return for long-term Treasury ETF TLT being -31.41%. SGOV, BIL, and SHV achieved total returns for the year of 1.58%, 1.38%, and 0.94%, respectively, all positive.

The data represents the total returns for the 2022 calendar year (NAV value, including dividends). SGOV, BIL, and SHV are short-term Treasury products, while TLT is a long-term Treasury ETF with a maturity of over 20 years.

However, a short duration does not mean that the net value is free from fluctuations. SHV recorded a total return of -0.10% in 2021, indicating that in years when interest rates are near zero and rates change, short-term Treasury ETFs may also experience returns close to zero or even slightly negative. The net value fluctuation depends on the speed and magnitude of changes in yields; however, due to the short duration, the price is usually affected to a limited extent. For SGOV's effective duration of about 0.09 years, under unchanged conditions, a 1 percentage point increase in yield corresponds to a price impact of about 0.09%. This summarizes the main differences between short-term and long-term Treasury ETFs. The former typically carries lower price risk but is not entirely devoid of it.

The data from 2022 should not imply that short-term Treasury ETFs can consistently generate positive returns in any interest rate environment. It indicates that a short duration significantly mitigates the price losses caused by rising rates. That year, short-term Treasury yields gradually increased alongside continued Federal Reserve rate hikes, allowing the fund to reinvest matured funds into new securities with higher yields, and the increased interest income helped offset the limited price fluctuations. Subsequently, SGOV's annual total returns for 2023 and 2024 were approximately 5.12% and 5.27%, respectively, further emphasizing that the returns from such products mainly stem from accrued interest income, while the contribution from net asset value appreciation is relatively limited.

3. Where does SGOV's income come from? The answer is reinvestment after maturity.

SGOV's income primarily stems from the interest generated by the underlying Treasury bills and from the earnings gained after reinvesting the principal upon maturity into new securities. Due to the short duration of the bonds held, the fund continuously recovers maturing principal and then buys new short-term Treasuries at the current market interest rates. The U.S. Treasury regularly auctions Treasury bills with maturities ranging from a few weeks to six months; the fund can participate in primary market auctions or buy them on the secondary market at prevailing prices and yields. Short-term Treasury yields are jointly determined by market supply and demand and interest rate expectations; changes in policy rates by the Federal Reserve will affect the short end of the market, but market yields may not necessarily wait for official actions from the Fed to change.

Assuming the short-term Treasury yield rises from 3% to 4%, as existing bonds mature, the fund will have the opportunity to invest the recovered principal into new, higher-yielding securities, thus the overall yield of the portfolio will gradually align with the new market rates. This process does not happen overnight, but unfolds as holdings mature and the fund continually purchases new bonds. Since SGOV mainly holds Treasury bills with maturities of 0 to 3 months, the portfolio refresh rate is relatively fast, and changes in market interest rates can usually be reflected in the holding yield within a reasonably short timeframe.

We can simplify this process with an example. Suppose the yield of the existing portfolio is 3%, and after market interest rates rise, the yield of newly purchased Treasury bills reaches 4%. As the existing holdings mature, and the fund invests in new securities, the portfolio yield will gradually approach 4% from 3%. The specific speed of this increase depends on the maturity distribution of existing bonds, the actual replacement ratio, and changes in market yields—completing a fixed proportion of the replacement does not guarantee that the portfolio yield will rise by the same proportion.

This is different from the yield mechanism of long-term fixed coupon bonds. When buying long-term bonds, the coupon rate is essentially set; even if market interest rates rise afterward, the existing bonds do not automatically receive a higher coupon rate. If investors want to switch to higher-yielding new bonds, they need to sell existing bonds, but as market rates rise, the prices of old bonds often decline. SGOV has a short holding duration and fast capital turnover, allowing for continuous adjustments of portfolio yields through frequent purchases of new securities, hence it can more easily follow changes in short-end market interest rates.

Looking at SGOV's returns over the years, one can discern the impact of different interest rate environments on yield levels. In 2022, which was the beginning of the rate hike phase, short-term Treasury yields gradually increased from low levels, resulting in a total return of 1.58% for SGOV. In 2023 and 2024, as policy rates stabilized at a high plateau, short-term Treasury yields remained elevated, yielding annual total returns of around 5.12% and 5.27%, respectively. Following the Fed's rate increase restart in September 2026, short-term rates rose again, with SGOV achieving a return of 3.04% (as of October 29). This data reflects that SGOV's return levels are closely linked to market interest rates of short-term Treasuries. In the initial phase of rate hikes, it takes time for yields to fully propagate to the fund’s holdings. When interest rates remain high, the fund can continue to reap substantial interest income. Upon further changes in market rates, the fund's income will also adjust alongside portfolio updates.

The data represents SGOV's annual total returns (including dividends, NAV value), with 2026 as the intra-year return as of October 29. The year 2022 was characterized by interest rate hikes, while 2023 and 2024 saw the policy rate at a high plateau, and rate hikes resumed in September 2026.

However, SGOV's distributions will not automatically increase proportionally with each rate hike by the Federal Reserve. Short-term Treasury yields will also be influenced by market supply and demand, future interest rate expectations, and liquidity conditions; sometimes the market may adjust short-term Treasury yields ahead of the Federal Reserve's official rate hike. The speed of the fund's portfolio updates and management fees can also impact final yields. Therefore, assessing SGOV's current and future yield levels should not solely rely on whether the Fed raises rates but also on observing yields in the short-term Treasury market and the fund’s subsequent actual distributions.

As of October 29, 2026, SGOV's 30-day SEC yield was 3.79%, while the rolling distribution rate for the past 12 months was 3.64%, differing by approximately 0.15 percentage points. These two metrics are calculated differently and should not be directly compared as the same yield. The 30-day SEC yield is annualized based on recent holdings' income, primarily reflecting the fund's recent yield level. The rolling distribution rate over the past 12 months is based on actual income distributed during the past year, incorporating previous distributions under different interest rate environments. As the past year may include distributions from lower-rate periods, if current short-term rates remain elevated, the rolling distribution rate has the potential to approach the recent yield level as earlier months' low distributions gradually fall out of the rolling statistical range. However, this does not mean these two metrics will ultimately equalize since their calculation methods and statistical scopes differ.

The left image depicts the policy rate change points for 2026. The right image presents SGOV's yield data as of October 29, 2026. The 30-day SEC yield is an annualized metric, while the rolling distribution rate for the past 12 months is calculated based on distributions over the previous 12 months; their calculation standards differ and should not be viewed as the same yield.

For investors, the most crucial factor to track is whether there are changes in short-term Treasury yields and whether such changes gradually reflect in SGOV's subsequent monthly distributions. Fluctuations in net asset value on the day of a rate change announced by the Federal Reserve do not directly indicate how much income the fund can generate in the future. The short-end market yields and actual distributions are more valuable metrics for reference.

4. Is a net value decrease after monthly distributions a loss?

No. A decrease in net value following a distribution is a normal ex-dividend change that occurs when the fund distributes accumulated earnings to holders. During the distribution cycle, the income generated by the underlying bonds is gradually accounted for in the fund's assets. On the distribution date, the fund distributes the accumulated portion of income to holders in cash, and the fund's net value will accordingly decline. The cash that investors receive corresponds to the reduction in net value. Hence, if one looks solely at the price curve, it is easy to mistakenly interpret the normal dividend distribution as an investment loss.

Taking the annualized yield level of 3.79% as an example, dividing by 12 gives a monthly corresponding yield of approximately 0.32%. This means that if one holds $10,000 in SGOV, based on this yield level, the approximate pre-tax income per month would be about $31.6. After the distribution is credited, the fund's net value will adjust accordingly; the value of the fund assets held by the investor decreases by the amount of cash distribution received in their account. It is necessary to clarify that this is a simple calculation meant to help understand the magnitude of income; the actual distribution amount will be determined by the fund based on current holdings' yield and distribution arrangements and is not guaranteed to be identical every month.

When evaluating SGOV, BIL, and SHV, one should examine the total returns that include distributions; simply comparing the purchase price and current net value can lead to misconceptions. Total returns consist of changes in net value and distributions. If one chooses to reinvest distributions, the income generated from reinvestments should also be included in the calculation. For products with monthly distribution, investors can decide whether to reinvest after distributions have been credited. If reinvestment is chosen, subsequent income will also be affected by market rates and purchase prices at the time of reinvestment. The net value trend chart may show periodic serrated changes, which does not mean the fund experiences actual losses each month.

Taxation is also a factor to consider before holding. For U.S. tax residents, distributions from short-term Treasury ETFs typically need to be reported according to relevant tax regulations, with specific tax classifications and treatment of state and local taxes depending on the composition of annual distributions and the investor's location. Non-U.S. tax residents need to assess their tax status and applicable regulations accordingly. Therefore, the yield displayed on the product page is a pre-tax metric, and the actual take-home income may vary based on the investor's tax identity.

5. Is it now suitable to pay attention to SGOV? Focus on the use of funds and short-term rates.

SGOV is suitable for temporarily parking U.S. dollars to earn short-term Treasury interest and is not ideal for locking in rates or betting on bond price spreads resulting from rate cuts.

First, clarify two things: when the money will be used and how high the current yield is. As of October 29, 2026, SGOV's 30-day SEC yield was 3.79%, and the rolling distribution rate for the last 12 months was 3.64%. The 3.79% serves as an observation of recent yields but does not represent a fixed return locked in after purchase. Roughly calculated annually, $10,000 would generate around $379 before tax, which will actually vary with short-term rates, holdings yields, and fees. If the short-end rates maintain current levels, subsequent distributions may stay close to that level; if rates continue to rise, yields may gradually improve after old bonds mature and are replaced; if the Federal Reserve shifts to cutting rates, yields on newly purchased bonds may decrease, resulting in possibly lower monthly distributions.

Compared to common U.S. dollar cash instruments, SGOV operates differently. Bank time deposits can lock in rates for a specified duration, but early withdrawals might be restricted, and rates are quoted by the bank, not necessarily keeping pace with the short-end market. Money market funds may include short-term Treasuries and repurchase agreements as underlying assets, with yield mechanisms similar to short-term Treasury ETFs, but the composition of assets, redemption methods, and risks need to be evaluated based on specific products. Directly holding Treasury bills allows one to know the payout amount at maturity when they buy, and they can receive corresponding returns if held to maturity, but one must participate in auctions or secondary market transactions and arrange for reinvestment at maturity. SGOV, by managing a basket of short-term Treasuries within the fund, allows investors to buy and sell shares on the exchange in real-time without managing maturity individually; the trade-off is that net value fluctuates with the market, and distributions are not fixed. It offers short-term Treasury returns and trading convenience, rather than serving as a locked-in term deposit with a fixed interest rate.

Thus, when considering SGOV, the characteristics of short-term Treasury ETFs indicate that they generally have smaller net value fluctuations, with yields floating with short-end rates, and are tradable on exchanges, making them commonly used for cash management of U.S. dollars. If there’s a chance that funds may be used in the coming months, or if maintaining higher flexibility is desired, such products can be an option for cash management. However, if funds can be parked for the long term and there’s a desire to lock in current high yields, along with obtaining capital gains from rising bond prices in the future when interest rates drop, it would be essential to consider longer-duration bond tools. SGOV's holding period is very short; after interest rates drop, matured principal will quickly be reinvested into lower-yielding securities, causing distributions to adjust downward; with a short duration, it is also challenging to gain substantial price appreciation during an interest rate decline cycle like long-term Treasury bonds.

Three indicators influence the income of such products. The 30-day SEC yield assesses whether the recent holdings yield has started to decline; the actual monthly distribution amounts check if income changes have been reflected in cash distributions; and the yield on 1 to 3-month U.S. Treasury bills indicates the direction of short-end market rates. If short-end yields consistently drop and indicate a decline in SEC yield and monthly distributions, it becomes necessary to reevaluate the after-tax yields of SGOV compared to other cash management tools; looking solely at the yield displayed on the product page is insufficient.

When should one reassess? If short-end market yields continue to slide and are reflected in the SEC yield and monthly distributions, it signifies potential declines in future cash income; a change in the use of funds—e.g., an intention to invest long-term instead of temporary parking—would necessitate reevaluating duration and income structure; if SGOV's after-tax yield does not significantly advantage over bank deposits, money market funds, or other cash tools, it's worth re-comparing. Regularly checking these indicators is more useful than trying to predict the outcomes of each Federal Reserve meeting.

Risks must also be clarified: sustained inflation above the product's yield may produce negative real returns after accounting for inflation; during certain times of market liquidity stress, the ETF trading price may temporarily dip below net value, resulting in additional costs when sold; SGOV is not a bank deposit and does not guarantee principal or fixed returns. Its interest rate risk is usually lower than that of long-term Treasury ETFs, but market price, interest rate, liquidity, and tax risks still exist.

Overall, SGOV's value lies in enabling temporarily idle U.S. dollars to earn income linked to short-term Treasury market rates, rather than profiting from a cycle of declining interest rates through bond price spreads. During rate hike phases, it gradually enhances yields through reinvestment upon maturity; during rate cuts, the yields on newly bought bonds will drop, and distributions will adjust accordingly. Before purchasing, clarify the purpose of the funds and during the holding period, jointly assess the short-end yield, SEC yield, and actual distributions to determine whether to continue holding. What is truly worth expending energy on is not predicting the next Federal Reserve meeting, but assessing whether the current yields are still worthy of retention.

Disclaimer:

This material is intended for general information and market commentary only, compiled based on publicly available information up to the time mentioned in the text; relevant market data, expectations, and probabilities may change as market conditions shift. The views and investment strategies cited from third-party agencies, analysts, or others only reflect their opinions at a certain time and do not represent BIT's views or promotions. This document does not constitute investment advice, research, solicitation, or a recommendation for any security, investment product, or trading strategy, and should not serve as a basis for any investment decisions. Financial markets involve risk; securities prices and market performance may fluctuate, and past performance does not assure or guarantee future results. Investors should independently assess the relevant risks based on their circumstances and seek professional advice when necessary.

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