Investors have been reassessing risks tied to higher energy costs from the Middle East conflict. Markets remain driven by geopolitical tensions, particularly around the Strait of Hormuz. Ongoing issues and Iranian strikes on the United Arab Emirates continue to threaten the fragile U.S.-Iran ceasefire and global energy flows.
United States Oil Fund LP USO has lost about 2% over the past week. The pullback came even as supply risks persist, suggesting markets are reassessing immediate disruption fears. Meanwhile, State Street SPDR S&P 500 ETF Trust SPY added about 1.9% over the past week.
How Is U.S. Economic Condition?
The increasing recession concerns have led investors toward this apparently-safe asset class. Odds of a recession by the end of 2026 dropped from 40% to 17% on Kalshi as of May 1, 2026, a record low for the oddsmaker. Probability also fell on Polymarket, falling to as low as 23%, the lowest level since early March, as quoted on Forbes.
U.S. GDP grew at a 2% annualized rate through the first quarter of 2026, a sharp rebound from the revised-down 0.5% growth to end 2025. These data points should be good news for the U.S. economic health and the bond market, especially amid the U.S.-Iran tensions, which may brighten the appeal for U.S. treasuries.
The U.S. treasuries are currently high-yielding too. With the Fed likely to turn less-hawkish this year, investors’ preference toward U.S. treasuries should strengthen. Notably, a hawkish Fed means a rise in bond yields and bond yields are inversely related to the bond prices.
As of May 4, 2026, two-year U.S. treasury yield stood at 3.95% while the 30-year treasury yield stood at 5.02%. With the equity markets seesawing since the start of the Iran war, investors may consider the short-term U.S. treasuries as these carry less interest risks and default risks. Hence, we believe cash and short-dated fixed income may play a greater role in adding stability to a portfolio.
ETFs in Focus
Against this backdrop, investors can play short-duration U.S. treasury ETFs with a medium-term view.
iShares 1-3 Year Treasury Bond ETF SHY – Yields 3.71% annually, charges 15 bps in fees
The ICE US Treasury 1-3 Year Bond Index comprises of U.S. Treasury bonds with remaining maturities between one and three years.
Vanguard Short-Term Treasury ETF VGSH – Yields 3.90% annually, charges 3 bps in fees
The underlying Bloomberg US Treasury 1-3 Year Bond Index includes fixed income securities issued by the U.S. Treasury all with maturities between 1 and 3 years.
iShares 0-3 Month Treasury Bond ETF SGOV – Yields 3.91% annually, charges 9 bps in fees
The underlying ICE 0-3 Month US Treasury Securities Index comprises of U.S. Treasury bonds with remaining maturities less than or equal to three months.
PIMCO Enhanced Short Maturity Active ETF MINT – Yields 4.36% annually, charges 36 bps in fees
The PIMCO Enhanced Short Maturity Active ETF is an actively managed exchange-traded fund that seeks greater income and total return potential than money market funds, and may be appropriate for non-immediate cash allocations.
iShares Short Duration Bond Active ETF NEAR – Yields 4.47% annually, charges 25 bps in fees
The iShares Short Duration Bond Active ETF seeks total return in excess of the reference benchmark.
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State Street SPDR S&P 500 ETF Trust (SPY): ETF Research Reports
United States Oil ETF (USO): ETF Research Reports
iShares 1-3 Year Treasury Bond ETF (SHY): ETF Research Reports
Vanguard Short-Term Treasury Index Fund ETF Shares (VGSH): ETF Research Reports
PIMCO Enhanced Short Maturity Active ETF (MINT): ETF Research Reports
iShares Short Duration Bond Active ETF (NEAR): ETF Research Reports
iShares 0-3 Month Treasury Bond ETF (SGOV): ETF Research Reports
This article originally published on Zacks Investment Research (zacks.com).