Latest / The Day Trading Podcast with Fexingo: Active Trading, Charts, and Short-Term Market Strategy / The Day-Trading Edge Hidden Inside Bond ETFs
Transcript
- Lucas: Alright, let me start with a number that stopped me this week. The ten-year Treasury yield hit a high of four point eight seven percent on Wednesday. That is the highest print since late 2007. But that's not the trade I want to talk about. Luna: Okay, because rates have been grinding higher for months. What's the actual trade? Lucas: The trade is sitting in the short end. Specifically, what's happening inside Treasury ETFs like SHV and SGOV. These are the iShares Short Treasury Bond ETF and the BlackRock Ultra Short-Term Bond ETF. They're basically cash equivalents — duration under a year, essentially zero credit risk. Luna: Right, and these have been getting massive volume. I saw SHV traded over 12 million shares on Tuesday. That's about double its average. Lucas: Exactly. And the reason is the yield. SGOV's current yield is about five point three percent annualized. That's basically the risk-free rate on cash. For a day trader sitting on a six-figure cash position overnight, that's real money. Luna: So the argument is, instead of parking cash in a brokerage sweep account earning maybe two percent, you buy SHV or SGOV and capture the full yield. Lucas: Right. And there's a structural nuance here that makes it even better for active traders. These ETFs accrue interest daily and pay it out monthly. But because they trade like stocks, you can buy them at 3:59 PM, collect the accrued interest for that day, and sell them the next morning. The bid-ask spread is usually one to two basis points, so the net carry is about three to four basis points per day at current rates. Luna: Three to four basis points — that's like three to four dollars per ten thousand dollars per day. Doesn't sound huge, but it adds up. Lucas: It does. Let's say you're running a two-hundred-thousand-dollar account and you keep fifty thousand in cash for margin requirements. That's roughly six dollars and fifty cents a day in interest. Over a month, that's about a hundred and forty dollars. For a small account, that's meaningful. Luna: But is it worth the screen time? I mean, day traders are looking for big swings. Chasing pennies seems like a distraction. Lucas: Fair pushback. But I'd argue it's not a distraction — it's a base hit. If you're already in your platform, the trade takes ten seconds. Market order, done. And the bigger point is that the yield on cash is now competitive with a lot of active strategies. If you have a slow day, you're still earning five percent on your idle cash. Luna: So it's a hedge against downtime. I can see that. But there's a regulation angle here too, right? The SEC proposed new rules for money market funds last year. Lucas: Yes. The SEC wants to impose swing pricing and liquidity fees on prime money market funds. That would make them less attractive for retail. So Treasury ETFs are already seeing inflows as a substitute. The comment period ended in April, and implementation could happen by late 2026. Luna: And the VIX is sitting at 16.7, down six percent on the week. That's a low-vol environment where carry trades become relatively more attractive. Lucas: Exactly. When vol is low and yields are high, the opportunity cost of sitting in cash drops. You're not missing massive moves. So parking cash in these ETFs is almost a no-brainer. Luna: But there is a catch, right? These are ETFs, not cash. They can trade at a premium or discount. Lucas: They can, but in practice, SHV and SGOV trade within a few basis points of NAV because the underlying is so liquid. The authorized participants arbitrage those tiny differences away instantly. Luna: Alright, so what's the trade? Just buy and hold, or are you doing something more active? Lucas: The active trade I've seen some prop desks use is a 'yield enhancement' overlay. You hold SGOV as a core cash position, but you sell out-of-the-money put credit spreads on SPY against it. The cash earns yield, and the premium from the puts adds another layer. It's not for everyone, but it's a way to juice the return on cash without taking on much duration risk. Luna: That's interesting. But you're adding equity risk. The puts are tied to the S&P. Lucas: Right, so it's not risk-free. But the idea is that the cash yield covers some of the downside. And if the market stays calm — which it has been, with the VIX below 17 — the puts expire worthless and you keep the premium. Luna: Let's talk numbers. How much extra yield can you get from selling puts? Lucas: A typical one-standard-deviation put credit spread on SPY, say the 5000/4950 put spread for 30 days out, might collect around fifty dollars per contract. That's about one percent annualized on the notional. So if you do that on a portion of your cash, you could add a hundred to two hundred basis points to your cash yield. Luna: But you also have to put up margin. The buying power effect is usually around twenty percent of the spread width. So it's capital-efficient. Lucas: Exactly. And in a low-vol environment, it's a popular way to supplement income. But you need to be comfortable with the risk. If the market drops sharply, those puts go in-the-money and you could take a loss. Luna: So it's not for everyone. But the core idea — earning five percent on cash — is accessible to anyone with a brokerage account. You don't need options approval. Lucas: That's the beauty. Just buy SGOV or SHV. No complexity. And with the SEC potentially making money market funds less retail-friendly, these ETFs might become the default cash vehicle for day traders. Luna: Speaking of the show, if you're finding these strategy breakdowns useful, we keep the podcast ad-free and listener-supported. If our conversations have helped you think differently about a trade or a tool, consider throwing a few bucks our way at buy me a coffee dot com slash fexingo. Lucas: Yeah, it genuinely helps us keep the lights on and the episodes coming. Every bit goes right back into research and recording. Luna: Alright, back to the bond trade. One thing I want to ask: how does this compare to just buying T-bills directly? Lucas: Good question. T-bills are fine, but they require a TreasuryDirect account or a brokerage that handles them. And they're less liquid if you need to sell mid-month. The ETFs trade like stocks, so you can exit any time. The yield is slightly lower because of the expense ratio — around ten to fifteen basis points — but the convenience is worth it for active traders. Luna: So the takeaway: check your idle cash. If it's earning less than five percent, consider moving it into a short-term Treasury ETF. And if you're feeling ambitious, explore the options overlay. Lucas: That's it. The regime has shifted. Cash is no longer trash. For day traders, that's a structural change worth adapting to. Luna: Alright, let's leave it there. Next week we'll look at the APEC trade talks and what they mean for tariff-sensitive sectors. Lucas: Sounds like a plan. See you then.