Best Treasury ETFs If the Fed Raises Rates in 2026: SGOV, SHY, IEF, TLT and More Compared

Mikirduit – The stock market is moving sideways near its all-time highs, and investors are weighing the risk of a 25 to 50 basis point rate increase in December 2026. For investors who are worried about market risk, U.S. Treasury ETFs can be an appealing place to park money while earning income.

Key Takeaways

• Today’s market looks like 2022, but the rate pressure is lighter so far. A booming sector (AI) is once again running into rising rates and higher commodity prices. The Fed’s pace is still well below the roughly 300 basis points of hikes it delivered in the first nine months of 2022, when the S&P 500 fell about 27% and took until January 2024 to hit a new record.
• The Fed’s December decision is the signal to watch. A 50 basis point hike in December 2026 could be an early warning for U.S. stocks in 2027. Rate cuts will likely depend on whether geopolitical tensions ease and commodity prices cool.
• AI-linked debt is the biggest risk to monitor. About $850 billion in new AI-related debt has been issued in 2026, and $37 billion of the $80 billion in bonds is rated junk. A 2008-style crisis is not the base case, but widespread loan defaults would raise the stakes.

But “Treasury ETF” is not one product. These funds differ mainly by maturity (the length of the bonds they hold), and maturity determines how sensitive a fund is to interest rate changes. Treasury ETFs also pay income, similar to a dividend, so you earn something while you wait.

The right choice depends on two things: your risk tolerance and how long you can leave the money invested.

How Maturity Affects Risk and Return

The rule is simple. The longer the maturity, the higher the yield, but the larger the price swings when rates move. The five main categories are:

1. Ultra-short (0–3 months, up to 1 year)
2. Short-term (1–3 years)
3. Intermediate-term (3–10 years)
4. Long-term (10 years and beyond)
5. Multi-maturity (a blend of tenors)

Here is a side-by-side look at each one. Yields are approximate historical or trailing figures as of late October 2026 and change over time.

Past performance does not guarantee future results.

Ultra-Short Treasury ETFs (0–3 Months to 1 Year)

These funds hold very short-dated Treasury bills, so their prices tend to move sideways. Nearly all of your return comes from income rather than price gains.

• iShares 0-3 Month Treasury Bond ETF (SGOV): About 3.69% yield and a 0.09% expense ratio. It launched on May 26, 2020, so its track record is short, and it is up about 0.64% since inception on price alone. It has had dips of up to 7%, but it has bounced back, leaving the long-run trend flat.
• State Street SPDR Bloomberg 1-3 Month T-Bill ETF (BIL): About 3.71% yield and a 0.14% expense ratio. Launched May 25, 2007. Its price came under real pressure when Fed rates were near zero, from the post-2008 period through 2013–2014 until rates began rising in December 2015, and again in 2020 when rates were cut sharply during the pandemic.
• iShares 0-1 Year Treasury Bond ETF (SHV): About 3.69% yield and a 0.15% expense ratio. Launched January 5, 2007. Unlike SGOV and BIL, it can hold bonds with up to 12 months to maturity. It has been fairly stable, with a notable price drop during the Fed’s aggressive hikes in 2022 followed by a return to normal.

Short-Term Treasury ETFs (1–3 Years)

Volatility is higher than in ultra-short funds, but still modest.

• iShares 1-3 Year Treasury Bond ETF (SHY): About 3.65% yield and a 0.15% expense ratio. It has been sensitive to aggressive rate hikes, falling 3.7% during 2004–2006 and as much as 5.4% during 2021–2023.
• Vanguard Short-Term Treasury Index Fund ETF Shares (VGSH): About 3.8% yield and a very low 0.03% expense ratio. Launched November 19, 2009. It fell 1.9% in 2017–2018 as the Fed raised rates gradually, and about 6% in 2021–2022 when hikes accelerated.
• Schwab Short-Term U.S. Treasury ETF (SCHO): About 3.83% yield and a 0.03% expense ratio. Its pattern closely mirrors VGSH, with a drop of about 5% during the 2022 hiking cycle.

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Intermediate-Term Treasury ETFs (3–10 Years)

Volatility is much higher here than in the 1–3 year range, though still measurable and manageable for many investors.

• iShares 3-7 Year Treasury Bond ETF (IEI): About 3.82% yield and a 0.15% expense ratio. Launched January 5, 2007, it has gained 14.67% in total through October 23, 2026. In the worst case, during the aggressive 2022 hikes, its price fell about 15% from its 2020 peak.
• iShares 7-10 Year Treasury Bond ETF (IEF): About 4.14% yield and a 0.15% expense ratio. Because it holds longer-dated bonds than IEI, it is more volatile. It fell as much as 25% between the low-rate era of 2020 and the peak of the Fed’s hiking cycle, and it has not yet recovered to its 2020 high.
• Vanguard Intermediate-Term Treasury Index Fund ETF Shares (VGIT): About 4.03% yield and a 0.03% expense ratio. It holds a diversified mix of 3–10 year bonds. Launched November 19, 2009, it is down 4.33% on price since inception through October 23, 2026, and fell about 15% from its 2020 high through 2023.

Long-Term Treasury ETFs (10–20+ Years)

These funds pay the highest yields but are the most sensitive to rate moves, in both directions.

• iShares 10-20 Year Treasury Bond ETF (TLH): About 4.83% yield and a 0.15% expense ratio. It fell as much as 36% from its 2020 peak through 2023 and has been mostly sideways since.
• Vanguard Long-Term Treasury Index Fund ETF Shares (VGLT): About 5.04% yield and a 0.03% expense ratio. It saw a drop of up to 50% between the low-rate peak in 2020 and the high-rate environment of 2023.
• iShares 20+ Year Treasury Bond ETF (TLT): About 5% yield and a 0.15% expense ratio. Its volatility is nearly identical to VGLT, since it holds Treasuries with maturities beyond 20 years.

Multi-Maturity Treasury ETF

If you prefer not to pick a single maturity, the iShares U.S. Treasury Bond ETF (GOVT) spreads across several. It yields about 3.78% with a 0.05% expense ratio. Its price fell roughly 25% from its 2020 high during the aggressive hikes through 2023.

Key Takeaways by Category

• Under 1 year: Stable prices, with income yields of roughly 3.7%.
• 1–3 years: Worst historical drawdowns of about 5% to 6%.
• 3–10 years: Worst historical drawdowns of up to about 25%, with yields of roughly 3.8% to 4.1%.
• 10+ years: Worst historical drawdowns of up to about 50%, with yields of roughly 4.8% to 5%.
• Multi-maturity (GOVT): Worst drawdown of about 25%, with a yield near 3.78%.

So Which Treasury ETF Should You Choose Now?

If you need your money within about a year, an ultra-short ETF such as SGOV, BIL, or SHV is the most natural fit. You collect income with minimal price risk.

If you can hold for one to three years or more, short-, intermediate-, long-term, and multi-maturity ETFs all become options. For these, consider building your position gradually instead of investing everything at once. You can do this in two ways:

1. Dollar-cost averaging (DCA): Invest a fixed amount every month.
2. Staged lump-sum buying: Split your purchase into several tranches, timed to the Fed’s rate decisions.

Once the Fed stops raising rates and begins cutting, you can hold and consider taking profits after several cuts, or when rates reach their low point. Bond prices generally rise when rates fall, which is why longer-maturity funds can benefit most in a cutting cycle.