What is duration and how does it measure interest rate risk?

Duration definition: duration is a measure of how sensitive a bond or bond portfolio's price is to changes in interest rates; expressed in years; a bond with duration of 2 years will decrease in price by approximately 2% for every 1% increase in interest rates (and increase in price by approximately 2% for every 1% decrease in rates); this 'modified duration' approximation works well for small rate changes. VGSH's duration: VGSH's portfolio of 1-3 year Treasury notes has duration of approximately 1.9 years; a 1% rate increase causes approximately -1.9% price impact on VGSH; a 2% rate increase causes approximately -3.8% price impact; this is much smaller than longer-duration bond ETFs (IEF at 7-8 years duration, TLT at 16+ years duration) but more than T-bill ETFs. BILS's duration: BILS's 3-12 month T-bill portfolio has duration of approximately 0.4 years; a 1% rate increase causes only approximately -0.4% price impact; the T-bill fund barely moves in price regardless of rate changes; the price stability is the reason some investors prefer T-bill ETFs as cash equivalents. Duration and total return: duration measures ONLY price impact, not total return; when rates rise: VGSH's price falls by approximately duration × rate change, BUT the ongoing coupons reinvested at higher rates partially offset the price loss over time; the break-even period (time to recover from the price loss through higher reinvestment income) is approximately equal to the portfolio's duration — approximately 1.9 years for VGSH.

How do VGSH and BILS compare to money market funds and HYSA?

Money market funds: money market mutual funds (MMMF) invest in very short-term, high-quality instruments (T-bills, repo, short commercial paper); government money market funds hold only T-bills and government repo; MMFs maintain a stable $1.00 NAV (price per share); MMFs are redeemable at end-of-day at $1.00 NAV with same-day or next-day settlement; no market risk (government MMFs have never broken the $1 NAV). BILS vs. government money market fund: BILS holds similar instruments (T-bills) as government MMFs but is structured as an ETF; BILS trades intraday on exchanges at market prices (though very close to NAV); settlement for ETF shares is T+1 (slightly different from MMF same-day redemption); BILS's yield may be slightly different from MMF yields due to fund expenses and portfolio construction differences; investors who want intraday ETF liquidity and don't need same-day cash access may prefer BILS; investors who need immediate access to cash may prefer MMF. High-yield savings accounts (HYSA): bank savings accounts with competitive interest rates (recently 4-5% during 2022-2023 high rate environment); HYSA money is FDIC insured up to $250,000 per depositor per bank; HYSA rates are set by banks and may lag T-bill rates; HYSA has no market risk but is not directly marketable (can't sell it to another investor); HYSA is limited to $250K FDIC insurance per bank per account type; for cash balances over $250K, T-bill ETFs (BILS) or money market funds are safer (no bank counterparty risk). VGSH's position: VGSH is not a cash equivalent — its 1-3 year maturity means price can decline 2-4% in a rising rate environment; VGSH is appropriate for bond portfolio allocation with a 1-3 year investment horizon, not for cash that might be needed in 3-6 months.

When is a short-term Treasury ETF better than holding individual Treasuries directly?

Advantages of Treasury ETFs (VGSH, BILS): diversification across many maturities (VGSH holds 2-year and 3-year notes at various points in the 1-3 year range, providing exposure across the maturity curve rather than a single bond); automatic reinvestment (maturing Treasury proceeds are automatically reinvested into new Treasuries matching the index parameters); intraday liquidity (buy and sell during market hours at market prices, unlike individual Treasury secondary market which may have wider bid-ask spreads); simplicity (no need to manage Treasury Direct accounts, track maturity dates, or select specific CUSIP numbers). Advantages of holding individual Treasuries directly: no expense ratio — holding individual Treasuries directly costs zero annually (no management fee); Treasury bills can be purchased at TreasuryDirect.gov with no fee; certainty of maturity — if you hold a 2-year Treasury to maturity, you receive exactly face value regardless of interest rate movements; an ETF never matures. Tax treatment: Treasury interest is exempt from state and local income taxes; both ETF dividends from Treasury ETFs and direct Treasury interest benefit from this state tax exemption; however, the Treasury ETF may hold some capital gains/losses from portfolio rebalancing, while direct Treasury holding realizes no gain/loss if held to maturity. Conclusion: for most investors, Treasury ETFs (VGSH, BILS) provide superior convenience at very low cost; for investors with very large balances and the sophistication to manage a Treasury ladder directly, the expense ratio savings from holding individually may be material; for most retail investors, 0.04% VGSH or 0.1355% BILS is excellent value for the simplicity provided.

Data as of: June 20, 2026

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VGSH

Vanguard Short-Term Treasury ETF · ETF - Short-Term U.S. Treasury Notes (1-3 Year)

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BILS

SPDR Bloomberg 3-12 Month T-Bill ETF · ETF - U.S. Treasury Bills (3-12 Month Maturity)

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Quick take

VGSH vs BILS ETF Comparison: AI Score, Valuation, Performance and Upside

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VGSH (Vanguard Short-Term Treasury ETF) and BILS (SPDR Bloomberg 3-12 Month T-Bill ETF) are both U.S. government-guaranteed short-duration fixed income ETFs — VGSH provides 1-3 year Treasury note exposure at ultra-low cost (0.04%) with modest interest rate sensitivity and some yield pickup vs. cash, while BILS holds 3-12 month T-bills with near-zero interest rate risk functioning as a true cash equivalent that automatically rolls into current market rates.

VGSH vs BILS is short-term Treasury note ETF with near-zero cost and slight rate pickup vs. cash (Vanguard's 0.04% expense ratio on 1-3 year Treasury notes, 1.9-year duration for modest term premium, and Vanguard's structural cost advantage — underperforming vs. T-bills in rapid rate hike cycles) versus T-bill cash equivalent ETF with automatic rate rolling and near-zero duration (SPDR's 3-12 month T-bill portfolio at 0.1355% expense ratio, near-zero price volatility regardless of rate moves, and cash management utility — paying higher fees and sacrificing term premium for maximum rate flexibility).

Normalized 1Y performance

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Recent returns

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Analyst price targets & sentiment

Human Wall Street analysts' price targets, typically implying a ~12-month view — a separate signal from this site's own AI Prediction Signal further down the page, which is a 5-/30-day machine-learning forecast based on price history alone.

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BILS

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Who should consider this stock?

VGSH may suit investors who:

Want the lowest-cost U.S. Treasury exposure at 0.04% expense ratio with 1-3 year maturity and modest term premium vs. T-bills in a normal upward-sloping yield curve environment
Plan to hold for 1-3 years or longer and can accept modest short-term price fluctuations (approximately 1.9% per 1% rate move) in exchange for the yield pickup from 2-3 year Treasuries
Use VGSH as the highest-quality component of a diversified bond portfolio seeking U.S. government-guaranteed income at minimal cost

BILS may suit investors who:

Want a cash equivalent that earns current T-bill market rates with near-zero interest rate risk and the convenience of ETF intraday trading vs. money market mutual funds
Are uncertain about the direction of interest rates and want automatic adjustment to current rates as T-bills roll at maturity, avoiding the fixed-rate risk of VGSH in a rising rate scenario
Have shorter investment horizons (days to months) or use BILS as a tactical parking vehicle between investment opportunities where capital preservation is more important than income optimization

Performance & AI score

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Valuation & upside potential

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Growth, profitability & risk

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Drawdown & downside risk

Lower drawdown and smaller single-period drops generally indicate a smoother ride, though they do not guarantee lower future risk.

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Performance metrics by period

Performance metrics by period
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AI Prediction Signali

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Next 5 trading days

VGSH

+2.8%BUY

BILS

+1.1%HOLD

Next 30 trading days

VGSH

+6.4%BUY

BILS

+3.2%HOLD

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Business comparison

Business comparison
Category	VGSH	BILS
Company	Vanguard Short-Term Treasury ETF	SPDR Bloomberg 3-12 Month T-Bill ETF
Sector	ETF - Short-Term U.S. Treasury Notes (1-3 Year)	ETF - U.S. Treasury Bills (3-12 Month Maturity)
Industry	N/A	N/A
Core business	VGSH tracks the Bloomberg US Treasury 1-3 Year Bond Index, holding U.S. Treasury notes with remaining maturities of 1-3 years. Treasury notes are fixed-rate U.S. government debt securities issued with original maturities of 2, 3, 5, 7, or 10 years; VGSH holds the 2 and 3-year segments of the curve. As a Vanguard fund, VGSH has an exceptionally low expense ratio (approximately 0.04%) and benefits from Vanguard's economies of scale and investor-owned structure. VGSH's 1-3 year maturity range means it has modest but non-zero interest rate sensitivity (duration approximately 1.9 years) — a 1% interest rate increase reduces VGSH's value by approximately 1.9%. VGSH distributes monthly income from Treasury coupon payments.	BILS tracks the Bloomberg 3-12 Month U.S. Treasury Bill Index, holding U.S. Treasury bills (T-bills) with maturities of 3-12 months. T-bills are the shortest-duration U.S. government securities — they are issued at a discount to face value and mature at face value (they pay no coupon; the investor's return is the discount at purchase); BILS effectively holds a rolling portfolio of T-bills that mature every 3-12 months, continuously reinvesting into new T-bills as old ones mature. BILS has near-zero interest rate sensitivity (duration approximately 0.4 years) and functions as a cash equivalent that provides market-rate T-bill yields with daily liquidity. BILS has an expense ratio of approximately 0.1355% and distributes monthly income.
Investor focus	Investors use VGSH for safe, liquid, U.S. government-guaranteed fixed income with some yield pickup over T-bills and very short duration, typically as the safest component of a diversified fixed income portfolio or as a parking place for capital with a 1-3 year investment horizon.	Investors use BILS as a cash equivalent that earns current T-bill yields while maintaining daily ETF liquidity — essentially a higher-yielding alternative to money market funds or bank accounts for cash management purposes.

VGSH strengths

Extremely low expense ratio (0.04%) with Vanguard's structural cost advantage — Vanguard's investor-owned cooperative structure passes cost savings to shareholders; 0.04% on Treasury ETFs is essentially the minimum cost available for passive treasury exposure
U.S. government full faith and credit guarantee eliminates credit risk — U.S. Treasury securities have zero credit risk (the U.S. government can always print dollars to repay dollar-denominated debt); VGSH holders bear only interest rate risk, not default risk
1-3 year duration provides some yield pickup over T-bills with limited rate sensitivity — the yield curve normally has a positive slope (2-3 year yields above 3-month T-bill yields); VGSH typically earns this term premium; duration of approximately 1.9 years means modest sensitivity to rate changes

BILS strengths

Near-zero interest rate risk with automatic rolling into current market T-bill yields — BILS's ultra-short maturity (3-12 months) means its price barely moves when interest rates change; as T-bills mature and are replaced by new issues, BILS automatically adjusts to prevailing interest rates
Highest-quality, most liquid government securities — U.S. Treasury bills are the safest and most liquid financial instruments in the world; the T-bill market is the backbone of the global financial system; zero credit risk with exceptional secondary market liquidity
Functional alternative to money market funds with ETF liquidity — money market funds typically hold similar instruments (T-bills, repo) but are structured as mutual funds that transact at end-of-day NAV; BILS trades continuously during market hours with real-time pricing

Risks to watch — VGSH

Fixed-rate coupons mean VGSH does not automatically benefit from rising rates — unlike floating-rate instruments (loans, SOFR-based instruments), VGSH's holdings have fixed coupons; when rates rise, existing bond coupons become less attractive relative to new, higher-yielding bonds; VGSH's price declines to adjust yields upward
In steeply rising rate environments, VGSH underperforms T-bills — during aggressive Fed rate hiking cycles, the 1.9-year duration causes meaningful price declines; T-bills outperform in rapidly rising rate environments because they mature quickly and roll into higher-yielding new bills
Minimal differentiation from cash in very low rate environments — when short-term interest rates approach zero, VGSH and T-bills both yield near-zero; the advantage over cash equivalents nearly disappears

Risks to watch — BILS

In falling rate environments, BILS yield declines rapidly as T-bills mature and roll into lower-yielding new issues — unlike fixed-rate bonds that maintain their coupon as rates fall (and gain in price), BILS rolls into lower-yielding T-bills; the income declines quickly when the Fed cuts rates
Higher expense ratio than VGSH (0.1355% vs 0.04%) — BILS costs more than VGSH; the additional cost must be justified by BILS's reduced interest rate risk; in stable or declining rate environments, VGSH's lower cost and yield pickup may outperform BILS after fees
Slightly lower yield than 1-3 year Treasury notes — the yield curve normally slopes upward; 3-12 month T-bills yield less than 1-3 year notes; VGSH typically provides somewhat higher income than BILS from the positive yield curve slope

Frequently asked questions

T-bill definition: U.S. Treasury bills are the shortest-maturity U.S. government securities, issued with maturities of 4 weeks, 8 weeks, 13 weeks (3 months), 17 weeks, 26 weeks (6 months), and 52 weeks (1 year); T-bills are issued at a discount to face value — an investor might pay $970 for a 26-week T-bill with a $1,000 face value; at maturity (26 weeks later), the investor receives $1,000; the $30 difference is the investor's return; T-bills pay no periodic coupon; the return is entirely from the price discount. Yield calculation: the T-bill discount yield is expressed as an annualized percentage of face value; a 13-week T-bill with a 5% annual discount yield would be priced at approximately $987.50 (1,000 × (1 - 5% × 91/360)); the equivalent bond yield (investment yield) is slightly different due to compounding conventions. Fed funds rate connection: the Federal Reserve's fed funds rate target directly affects T-bill yields; the 3-month T-bill yield closely tracks the fed funds rate; when the Fed raises rates, T-bill yields rise almost immediately (within days, as new T-bill auctions price at higher rates); when the Fed cuts rates, T-bill yields fall quickly; this makes T-bills the most rate-sensitive (in terms of income, not price) short-duration instrument. BILS mechanics: BILS purchases T-bills at auction and in the secondary market; as T-bills mature, BILS rolls the proceeds into new T-bill purchases; the fund always holds a 3-12 month ladder of T-bills; monthly distributions reflect the rolling T-bill coupon income; the NAV stays near $100 with minimal fluctuation.

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