Hello, YieldAlley readers! In this issue:

• Vanguard’s VBIL and VGUS Enters the Ultra-Short Treasury ETF Market

• Markets Rally Near Record Highs as Inflation Data Delays Rate Cut Expectations

• How to get free gym membership

• And more!

NEWS

Standout Stories

🤔 Is $1 Million Still a Lot of Money? (Of Dollars and Data)

🤖 Meta plans investments into AI-driven humanoid robots (Reuters)

💰 Norway’s wealth fund reports record profits. It’s now worth $319,900 per citizen. (Sherwood)

☺️ Investors who favored cheaper, proven funds fared best over the past two decades. (Morningstar)

🙅‍♂️ OpenAI board rejects Elon Musk-led $97 billion purchase offer (CNN)

MARKET THOUGHTS

Markets Rally Near Record Highs as Inflation Data Delays Rate Cut Expectations

• ECONOMY

  • January's inflation readings came in hotter than expected, with headline CPI rising 0.5% month-over-month and 3.0% year-over-year, accelerating from December's 2.9%. Core CPI, excluding food and energy, increased 0.4%, double December's rate. The Producer Price Index also exceeded expectations, rising 0.4% versus the projected 0.3%. Housing costs remained a significant factor, accounting for nearly 30% of January's CPI increase. Federal Reserve officials, including Chair Powell and Chicago Fed President Goolsbee, characterized the data as "sobering," indicating that while progress has been made on inflation, more work remains before policy can be eased.

• STOCKS

  • U.S. equity markets pushed higher, with the Nasdaq Composite leading gains at 2.58% for the week, bringing both it and the S&P 500 within 1% of their all-time highs. Growth stocks outperformed value shares for the second week this year, while small-caps lagged behind larger companies. Markets received a boost after President Trump opted to delay implementing new global tariffs, instead announcing a study for potential country-specific reciprocal tariffs by April 1. This decision appeared to ease investor concerns by creating room for bilateral negotiations with trading partners.

• FIXED INCOME

  • Treasury yields experienced volatility following the inflation data, with the 10-year yield briefly touching 4.66% before retreating later in the week. The hot inflation prints pushed market expectations for the Fed's first rate cut from September to December. Municipal bonds initially underperformed Treasuries following the CPI report but partially recovered on Thursday. Investment-grade corporate bonds outperformed Treasuries despite light issuance, with strong demand in the secondary market. The high-yield sector demonstrated resilience amid equity gains and Treasury yield volatility. These market movements reflect investors adjusting their expectations for monetary policy in response to persistent inflation pressures.

INCOME BUILDING

Vanguard’s VBIL and VGUS Enters the Ultra-Short Treasury ETF Market

In a significant move for short-term investors, Vanguard has introduced two new ETFs designed to provide low-cost Treasury exposure: the Vanguard 0-3 Month Treasury Bill ETF (VBIL) and the Vanguard Ultra-Short Treasury ETF (VGUS). These offerings mark Vanguard's entry into the competitive ultra-short Treasury ETF space, challenging existing products with industry-leading low expense ratios.

Breaking Down the New Offerings

The new offerings serve different segments of the short-term Treasury market. VBIL, which tracks the Bloomberg US Treasury Bills 0-3 Months Index, focuses exclusively on the shortest-term Treasury bills available. This ultra-short duration makes it an ideal vehicle for investors seeking maximum stability and ready access to their funds. The fund competes directly with iShares' SGOV, which carries a higher expense ratio of 0.09%.

VGUS casts a slightly wider net, tracking the Bloomberg Short Treasury Index, which includes Treasury securities with maturities of up to one year. This longer duration profile potentially offers slightly higher yields in exchange for marginally increased interest rate sensitivity. The fund fills a gap in Vanguard's lineup between their money market funds and their existing ultra-short bond offerings.

VBIL (Vanguard 0-3 Month Treasury Bill ETF)

• Tracks the Bloomberg US Treasury Bills 0-3 Months Index

• Focuses exclusively on Treasury bills maturing in three months or less

• 0.07% expense ratio, lower than competitor SGOV's 0.09%

• Designed for highest liquidity needs with minimal interest rate risk

• Fully state and local tax-exempt

VGUS (Vanguard Ultra-Short Treasury ETF)

• Tracks the Bloomberg Short Treasury Index

• Holds Treasury securities with maturities under 12 months

• 0.07% expense ratio

• Slightly longer duration than VBIL for potentially higher yields

• Also fully state and local tax-exempt

The Competitive Landscape

The ultra-short Treasury space has evolved significantly since YieldAlley's earlier analysis of floating rate Treasury ETFs as compelling alternatives to traditional cash management vehicles. In our previous coverage, we highlighted how funds like WisdomTree's USFR and iShares' TFLO (both with 0.15% expense ratios) gained popularity through their unique approach of investing in floating rate notes that reset weekly based on Treasury bill auctions, plus a fixed spread determined at auction.

These FRN ETFs continue to demonstrate the advantages we previously identified. They've shown remarkable stability during periods of rate volatility while delivering competitive yields. Both funds maintain yields competitive with traditional money market funds while offering the additional benefit of rapid rate resets during periods of changing monetary policy.

Vanguard's entry with VBIL and VGUS key differentiator lies in their expense ratios - at 0.07%, they undercut not only the FRN ETFs but also direct competitors like SGOV (0.09%) and BIL (0.14%). While these basis point differences might seem small, they can add up significantly over time, especially for larger cash positions.

Money market funds like Vanguard's VMFXX (Federal Money Market) and Fidelity's FZDXX remain popular choices. Still, as some of our readers note, these funds often include a mix of government securities and repos, potentially resulting in lower state tax exemption percentages. For example, recent tax reporting showed VMFXX with only 59.87% state tax-exempt income compared to VUSXX's 100% - a consideration we've long emphasized in our coverage of cash management vehicles.

Advantages Over Traditional Options

The launch of VBIL and VGUS offers distinct advantages over traditional cash management vehicles, with each comparison highlighting different benefits for investors. Let's examine how these new offerings stack up against existing options.

When measured against high-yield savings accounts, these ETFs present several compelling advantages:

• State/local tax advantages

• No FDIC insurance limits

• Potentially higher yields

• Direct exposure to Treasury rates

This tax treatment is particularly significant since the interest generated is exempt from state and local taxes, effectively boosting the after-tax yield compared to HYSAs, especially for investors in high-tax states like California and New York. While HYSAs are limited by FDIC insurance caps of $250,000, these Treasury ETFs have no such restrictions since they're backed by the full faith and credit of the U.S. government.

For investors who have considered purchasing Treasury securities directly, these ETFs eliminate several common pain points:

• No need to manage individual securities

• Greater liquidity

• Automatic reinvestment

• No TreasuryDirect account required

The ETF structure provides greater liquidity than individual Treasury securities, with the ability to buy or sell during market hours rather than waiting for maturity. The automatic reinvestment of monthly distributions also simplifies portfolio management compared to handling individual Treasury maturities.

When compared to money market funds, these new ETFs offer distinct operational advantages:

• No minimum investment (unlike VUSXX's $3,000 requirement)

• Available across multiple brokerages

• Potentially lower expenses

• Greater transparency in holdings

Expected Performance

While SEC yields haven't been posted yet for the new funds, they are expected to be competitive with current market rates.

Investment and Trading Considerations

Unlike traditional savings accounts or money market funds, these ETFs trade during market hours and require a brokerage account. Experienced investors recommend placing trades between 11 AM and 2 PM Eastern time to avoid potential volatility around market open and close.

For investors considering direct Treasury purchases instead of ETFs, while direct Treasury purchases through platforms like Fidelity might save a few basis points in fees, they require more active management and don't offer the same convenience as automated monthly distributions from ETFs. Additionally, as YieldAlley previously analyzed, individual investors often don't receive the same favorable pricing on Treasury trades as large institutional investors, potentially offsetting the fee savings.

Advantages of VBIL and VGUS

• Industry-leading low expense ratios at 0.07%

• State/local tax exemptions on interest

• Backed by U.S. government securities

• High liquidity with expected tight bid-ask spreads

• No investment minimums

Potential Drawbacks of VBIL and VGUS

• Requires a brokerage account

• Trading limited to market hours

• Slight learning curve for those new to ETF trading

• May experience minimal price fluctuations

Management Expertise

The ETFs will be managed by Vanguard's Fixed Income Group, led by Josh Barrickman, Co-Head of Fixed Income Group Indexing in the Americas. With over $2.5 trillion in global assets under management, the group brings considerable expertise in index fund management, having launched the world's first bond index fund in 1986.

Conclusion

Vanguard's new Treasury ETFs represent a significant addition to the ultra-short duration bond market, offering investors low-cost options for managing short-term liquidity needs. With industry-leading expense ratios and the backing of Vanguard's extensive fixed income expertise, VBIL and VGUS provide compelling alternatives to existing money market funds, savings accounts, and treasury investments. These products particularly appeal to investors in high-tax states seeking tax-advantaged options for their short-term savings needs and are solid investments for your cash holdings.

INCOME BUILDING

Cash Rates

Government Money Market Funds (7-Day Yields)

• SNVXX (Schwab Government Money Fund - Investor Shares): 4.10%

• SPAXX (Fidelity Government Money Market Fund): 4.01%

• TTTXX (BlackRock Liquidity Funds: Treasury Trust - Institutional Class): 4.19%

• VMFXX (Federal Money Market Fund): 4.25%

Brokered CD Rates (6-Month Rate)

• Charles Schwab: 4.35%

• E*Trade: 4.25%

• Fidelity: 4.35%

• Merrill Edge and Merrill Lynch: —

• Vanguard: 4.30%

ETFs (30-Day Yields)

• SGOV (iShares 0-3 Month Treasury Bond ETF): 4.24%

• BIL (SPDR Bloomberg 1-3 Month T-Bill ETF): 4.16%

• USFR (WisdomTree Floating Rate Treasury Fund): 4.23%

• TFLO (iShares Treasury Floating Rate Bond ETF): 4.22%

BONUSES AND DEALS

Health Insurance Could Get You Free Gym Membership

Many health insurance plans offer gym membership benefits, either through direct coverage or reimbursement programs. This is part of their preventive health strategy – investing in your fitness to reduce future medical costs.

How to Check Your Coverage:

1. Log into your insurance portal

2. Contact your insurance provider

3. Consult your HR department

Common Coverage Examples:

• Aetna insurance plans offer gym membership discounts

• AmeriHealth provides up to $150/year with 120+ annual workouts

• Cigna covers up to $150 individual/$300 family for gym and fitness classes

• Empire Blue Cross Blue Shield offers $200/family annually for any fitness center

• Horizon Blue Cross Blue Shield NJ rewards $240/year ($20/month with 12 workouts/month)

• MetroPlusHealth reimburses $200-250 every 6 months

• UnitedHealthcare gives up to $200/6 months when you work out 50+ times

Remember: Check eligible facilities and workout requirements before joining a gym. Some plans also allow FSA (Flexible Spending Account) funds for gym memberships if medically necessary.

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