With the US interest rate increasing so much lately, I am interested in putting some more of my money into US treasury bonds. I am looking at the SHY ETF on Fidelity, which is an ETF comprising short-term (1-3 year) treasury bonds.
Now, I am far from an expert in bond investing and perhaps I am misinterpreting, but looking at the numbers that are shown, the annual yield looks pretty poor. The most recent distribution on 11/1 was $0.14, which is monthly. So, annualized that would be $1.68. The current market price for SHY is about $81, which seems like it will give an annual return of around 2.1%.
As far as I am aware, the current interest rate on short-term US treasury notes is somewhere around 4.5%. So, why does the apparent yield from SHY seem so low, by comparison?
I understand that an ETF is going to contain bonds that were issued over the past 2-3 years, which would have been issued at much lower interest rates. However, if bond interest rates rise, shouldn't the ETF market price drop to give a similar % yield (otherwise, why would anyone consider buying this ETF)?
Am I missing something?