What is a Short-Term Bond ETF?

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  • Written By: A. Leverkuhn
  • Edited By: Andrew Jones
  • Last Modified Date: 21 August 2019
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The short-term bond ETF is a specific kind of fund that plays on a particular strategy for investing in short-term debt. The exchange traded fund, or ETF, is a kind of “liquid fund” that gets traded on the market in much the same way as a stock or publicly traded equity. Using a short-term bond ETF can be a way to get in and out of a short term debt sector quickly and easily.

Some of the features of most ETFs appeal to investors and traders who like the way the stock market works day-to-day. These individuals can often buy and or draw out of funds without some of the requirements of more long-term or more formally diversified instruments. Large online brokerage firms even offer easy and sometimes discounted or free ETF trades.

For beginners, it’s a good idea to look at how the short-term bond ETF differs from all of the other kinds of ETFs available through a brokerage. First, ETFs come in many different “flavors;” most of them represent complex bundles of equities and securities in the sectors or market niches that they are named for. There are precious metals ETFs and other commodity ETFs. There are currently ETFs based on the values of national monies. There are regular stock ETFs with bundles of stocks in different sectors, and there are fund ETFs based on bonds.


The short-term bond ETF offers a little less risk to traders who wish to participate in the bond market. Shorter term bonds often have less risk to the lender or bond holder than longer term bonds, where the chance of default can be significantly greater over time. Every kind of bond has its own interest rate, which is what produces gains to the bond holder.

Those who want to get involved in short-term bond ETFs can stick to U.S. Treasury bonds, a more reliable type of bond that has a lower chance of default. They can also mix these bonds with short-term corporate debt opportunities by choosing mixed short-term bond ETFs. Choosing between municipal and corporate short-term bonds is one of the critical decisions for investors who know that they want to be in the short-term bond market.

Realistically, investors have to look at a few critical things with short-term bond ETFs and similar offers. They have to look at what the chances are that any bond issuer, government or corporate, will default during the term of the loan. They have to look at costs in the form of expense ratios or management fees. They also have to see how a particular short-term bond ETF will fit into all of their other investment holdings. Technical analysis and good judgment can make short-term bond ETFs work for a single investor who’s interested in this kind of financial involvement in short term debt.


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