iShares 3-7 Year Treasury Bond ETF

IEI

Market cap $17.7B

The iShares 3-7 Year Treasury Bond ETF (IEI) offers moderate duration exposure but faces competition from more cost-efficient ETF combinations. Recent labor market softness and subdued consumer sentiment despite some recovery are a worry for the growth mandate though we wonder how much rate cuts would help. While CPI is below 3%, persistent shelter inflation could still persist inflation despite a tougher job market for wage price setters.

VGIT offers a lower expense ratio and slightly higher yield than IEI. IEI has delivered slightly better 1-year and 5-year returns with a shallower drawdown.

iShares 3-7 Year Treasury Bond ETF (IEI +0.13%) and Vanguard Intermediate-Term Treasury ETF (VGIT +0.14%) both target U.S. Treasuries in the intermediate maturity range, but differ on cost, yield, and subtle portfolio focus.

A compelling observation was made by Jeffrey Sherman, deputy chief investment officer at DoubleLine, on stage at the Astoria Advisors Macro Summit. He had just stated, “As a bond investor, I'm here to tell you that we're not special, but that we tend to be more risk-averse.

Treasuries resilient: Medium-term US bonds, via IEI ETF, show limited price impact despite government shutdowns and ongoing fiscal deficits. The IEI ETF offers no-thrills returns in times when the economy is transitioning. Despite the rise in term-premium last year, it has stabilized and has not risen further, even in the midst of political woes, the rising US budget deficit, and the trade war.

The bond market looks increasingly focused on slowing economic growth vs. tariff inflation.

IEI offers mid-duration Treasury exposure with low credit risk, but its expense ratio is higher than a combination or single alternatives depending on the desired accuracy of duration matching. Current inflation and duration risks are muted, with the main concern around potential USD weakness from fiscal deficits. Market consensus and recent data suggest stable leading inflation indicators and job markets, reducing the urgency for policy accommodation or fear of aggressive disinflation.

In recent days, a new headwind is weighing on fixed income securities: a US government budget bill, which is expected to significantly raise an already hefty federal deficit in the years ahead. Long-term Treasuries are the biggest losers post-Liberation Day, based on a set of ETFs through yesterday's close (May 21).

A riskier part of the bond market is offering yields around 8%, according to a BlackRock strategist

The iShares 3-7 Year Treasury Bond ETF is sensitive to yield curve changes, making it risky amid rising inflation expectations and disappointments regarding rate cuts. IEI's irregular maturity profile increases costs unnecessarily; cheaper alternatives with similar duration exposures exist, making IEI specifically uninteresting. The bond market's optimism on rate reductions may be misplaced, as rising inflation expectations and partial oil price recovery could force the Fed to prioritize inflation control.