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The Peculiar Behavior of Short-Term Treasury ETF Prices

June 3, 2025

This month’s newsletter topic clawed its way to the forefront after I received the same observant question twice in one day: Why is my short-term treasury ETF showing a negative price change today?

A short-term fixed income ETF (exchange-traded fund) invests primarily in securities such as government, corporate, or agency bonds with maturities typically ranging from less than one year up to five years.

ETFs such as $SGOV (iShares 0-3 Month Treasury Bond ETF) and $BIL (SPDR Bloomberg 1-3 Month T-Bill ETF) invest in ultra-short-term government debt while offering liquidity and a yield (interest rate) that closely tracks current short-term interest rates. These underlying bonds are considered the safest and highest quality because they are backed by the full faith and credit of the U.S. government. Treasury bills pay dividends monthly.

If you ever look at the price of these ETFs, you’ll notice a peculiar pattern emerge. Starting at the beginning of each month, the net asset value (NAV) of the fund rises like a staircase. At the very end of the month into the following month, the NAV plummets downward before beginning another monthly ascent — giving off a distinctly sawtooth pattern.

This drop and subsequent rise are attributable to the fund’s monthly dividend:

• Interest Accrual: Starting each month, $SGOV accrues daily interest from its holdings, which directly increases the NAV.
• Dividends Paid: On the ex-dividend date, generally early the next month, $SGOV pays out the accrued interest as a dividend to its investors.
• NAV Adjustment: The NAV drops by an amount roughly equal to the dividend that was just paid out.

In essence, the monthly NAV climb and drop in $SGOV is a standard, mechanical process reflecting the accrual and distribution of earned interest to shareholders.

- Chris McKeown

1. https://www.ishares.com/us/products/314116/ishares-0-3-month-treasury-bond-etf
2. https://www.investopedia.com/terms/i/investmentgrade.asp