The Vanguard Short-Term Treasury ETF (VGSH -0.04%) offers a lower expense ratio and a higher trailing yield than the Vanguard Short-Term Tax-Exempt Bond ETF (VTES +0.09%), which provides federal tax-exempt income.
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Short-term bond funds serve as vital components for conservative portfolios, offering a middle ground between low-yielding cash and the volatility of longer-term debt. This comparison analyzes two distinct approaches to short-duration fixed income: One that focuses on the security of U.S. government debt and another that seeks to maximize after-tax returns through municipal obligations. While both strategies target the short end of the yield curve, their differences in credit risk and tax treatment may appeal to different types of investors.
Snapshot (cost & size)
| Metric | VTES | VGSH |
|---|---|---|
| Issuer | Vanguard | Vanguard |
| Share price | $99.50 (as of 2026-10-15) | $57.62 (as of 2026-10-15) |
| Expense ratio | 0.05% | 0.03% |
| 1-yr return (as of Oct. 15, 2026) | 0.5% | 1.3% |
| Dividend yield | 2.7% | 3.8% |
| Beta | 0.12 | 0.05 |
| AUM | $3.6 billion | $39.6 billion |
Beta measures price volatility relative to the S&P 500; beta is calculated from monthly returns over the available fund history (up to five years). The 1-yr return represents total return over the trailing 12 months. Dividend yield is the trailing-12-month distribution yield.
The Vanguard Short-Term Treasury ETF is the more affordable option with a 0.03% expense ratio, though both funds are exceptionally low-cost. Investors looking for immediate cash flow may prefer the Treasury fund's higher 3.8% payout over the tax-exempt fund's 2.7% yield.
Performance & risk comparison
| Metric | VTES | VGSH |
|---|---|---|
| Max drawdown (3 yr) | (3.0%) | (1.2%) |
| Growth of $1,000 over 3 years (total return) | $1,096 | $1,126 |
What's inside
Vanguard Short-Term Treasury ETF tracks the Bloomberg US Treasury 1-3 Year Index, focusing exclusively on government-backed debt to minimize credit risk. Its 95 holdings include positions like the United States Treasury Note/Bond 3.50% 01/31/2028 at 2.07% and the United States Treasury Note/Bond 4.63% 04/30/2029 at 1.43%. As a fixed income fund, it carries no equity sector exposure and offers high liquidity. It was launched in 2009. Vanguard Short-Term Treasury ETF has paid $2.18 per share over the trailing 12 months, which on its recent ~$57.62 share price works out to a 3.8% yield.
Vanguard Short-Term Tax-Exempt Bond ETF samples 3,913 municipal issues to track the S&P 0-7 Year National AMT-Free Municipal Bond Index. Its largest positions include the Vanguard Municipal Low Duration Fund 12/31/2049 at 5.42% and State of California debt at 0.60%. This fund utilizes an ESG screen to select securities and aims to provide income exempt from federal taxes and the alternative minimum tax. It was launched in 2023. Vanguard Short-Term Tax-Exempt Bond ETF has paid $2.69 per share over the trailing 12 months, which on its recent ~$99.50 share price works out to a 2.7% yield.
For more guidance on ETF investing, check out the full guide at this link.
Which looks like the better buy
Vanguard's Short-Term Treasury ETF is the best choice if you're seeking lower risk, easier access to your money, and less sensitivity to interest rates. However, Vanguard's Tax-Exempt Bond ETF may be a better fit if you're in a high tax bracket and investing in a taxable account.
VGSH holds short-term U.S. Treasury bonds and has about 1.9 years of duration, so its price tends to move less when rates change.
VTEB holds municipal bonds, and its income is typically exempt from federal taxes. However, it has a duration of roughly 7.3 years, so its price can fluctuate more.
In short, choose VGSH for capital preservation or money you may need sooner. Choose VTEB for tax-free income if you can handle greater price and credit risk.
