Stash Cash in This Ultra-Short Bond ETF While Rates Rise | ETF Trends

According to Bankrate, the best rate is at 0.56%, which won’t make a yield-hungry investor look their way. However, another option to consider is short-term duration bond funds.

Investors can park cash in short-duration bond funds as opposed to earning a 0% return in a savings account that bears no interest rate return or stashing money under the bed. They can also use equities for even higher gains, but given the market volatility as of late, that’s never a guarantee.

As such, getting more yield in the short term while limiting risk of the stock market can be done with the T. Rowe Price Ultra Short-Term Bond ETF (TBUX). With a 30-day SEC yield of 0.98% (as of December 31, 2021), it’s almost double what money market accounts are offering these days.

As for the fund, TBUX invests in a diversified portfolio of shorter-term investment-grade corporate and government securities, asset-backed securities, and bank obligations. To limit credit risk, the fund invests at least 80% in bonds, and primarily all of the securities purchased by the fund will be rated investment-grade at the time of purchase.

Due to the nature of the fund’s investment universe, however, the fund will take on incrementally more credit risk than a money market fund (but less risk than the stock market). Additionally, this fund is subject to interest rate risk, as a rise in interest rates may cause the price of its securities to fall.

Hedging Against Rising Rates

That said, limiting duration to ultra-short maturities can help mitigate that rate risk. The Fed has already started to taper off its bond purchases amid an improving economy despite the latest roadblocks in the form of the Omicron variant, rising yields, and inflation.

Safe haven Treasury notes have been ticking higher across the board, in both the short and longer ends of the yield curve. To help ease rate risk and concentration risk, TBUX allocates sparingly to a number of debt holdings with the highest allocation being Japanese Treasury bills with a minimal 1.25% allocation of assets.

“Investors will again have to choose between collecting higher yields from riskier bonds or lower yields from safer ones,” a Think Advisor article says. So for investors willing to accept a bit more risk for more yield, TBUX is worth considering.

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