That’s where short duration bonds come in.  While no investment is as safe as cash, short duration securities offer relatively low interest rate risk with the opportunity for a higher yield than cash.  This is likely the reason we’ve seen many of our clients use short duration ETFs as a way to toe-dip back into the market while they wait out volatility. And because these ETFs come in a variety of categories, investors can choose the amount of credit risk they take on (for example, Treasuries vs. high yield).

So while the current market environment may not make you feel like dancing, at least the short duration two-step has you covered – no matter which direction you’re headed.

Matt Tucker, CFA, is the iShares Head of Fixed Income Strategy and a regular contributor to The Blog.  You can find more of his posts here.

Sources: Bloomberg and Morningstar as of 9/30/13

Bonds and bond funds will decrease in value as interest rates rise and are subject to credit risk, which refers to the possibility that the debt issuers may not be able to make principal and interest payments or may have their debt downgraded by ratings agencies.

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