As concerns mount over the spike in coronavirus cases in Europe and potential tax hikes to offset the latest stimulus package spending, U.S. money market funds have experienced a big surge in demand. Investors seeking to park their money in cash alternatives can also consider ultra-short-duration bond exchange traded funds.
U.S. money market fund inflows jumped to an 11-month high in the week ended March 24, Reuters reports. Money market funds brought in a net $60.16 billion for the week, the highest since April 2020, according to Refinitiv Lipper data.
Meanwhile, the pullback in U.S. bond yields has brought more money inflows back into U.S. equity funds, which saw net inflows of $14.1 billion; the flows were still 27% lower than in the previous week. Additionally, U.S. bond funds attracted $4.1 billion worth of new money for the week, a 56% drop from the previous week.
The flows into money market funds may be a way for investors to shift around cash after the spike in Treasury yields and the plunge in bond prices. The money flows may be heading toward equities and stock funds, with money market funds acting as a pit stop.
Investors who are seeking cash substitutes may look to actively managed, ultra-short-duration bond ETFs that are more free to adapt holdings in a shifting market environment while generating a decent yield along the way.
For example, investors can look to funds like the PIMCO Enhanced Short Maturity ETF (NYSEArca: MINT), Invesco Ultra Short Duration ETF (NYSEArca: GSY), SPDR SSgA Ultra Short Term Bond ETF (NYSEArca: ULST), and iShares Short Maturity Bond ETF (NYSEArca: NEAR). Investors should be aware that these active ultra-short-term bond ETFs include corporate debt exposure with some lower quality investment-grade debt exposure, which may contribute to their relatively higher yields.
Additionally, investors can look at conservative short-duration Treasury bond ETFs, such as the iShares Short Treasury Bond ETF (NYSEArca: SHV) and the SPDR Barclays 1-3 Month T-Bill (NYSEArca: BIL).
For more information on the fixed-income markets, visit our bond ETFs category.