CUST targets the short end of the Treasury curve where duration risk is minimal and yields often exceed money market rates. This sweet spot balances higher income than cash with protection against rising rates that devastate longer-duration bonds.
How It Works
The fund holds Treasury securities maturing in 1-3 years, maintaining an average duration around 2 years. It equal-weights holdings across the maturity spectrum rather than market-weighting by issuance size. Monthly rebalancing sells bonds approaching the 1-year cutoff while buying newly issued 3-year notes, creating consistent roll-down yield capture.
Key Features
- Zero expense ratio makes it cheaper than Treasury Direct for small accounts
- Duration of ~2 years means 2% principal loss per 1% rate increase vs 6%+ for intermediate funds
- Monthly distributions provide steady income without reaching for credit risk
Risks
- Rising rates could create 4-6% drawdowns if Fed hikes aggressively — painful but recoverable within a year
- Real returns turn negative when inflation exceeds 3-4%, eroding purchasing power despite nominal safety
- Opportunity cost versus longer bonds if rates fall sharply — you'll miss the capital gains party
Who Should Own This
Perfect for investors parking cash for 6-24 months who want better yield than savings accounts without stock market risk. Also works as the ballast in aggressive portfolios where you need liquidity and stability, not return maximization. Anyone buying 10-year Treasuries should consider splitting some allocation here.