Cash Is King: 5 Bond ETFs Unlocking Attractive Returns In A 5% Rate World

With the Fed funds rate at 5.5%, its highest level since the early 2000s, the temptation of cash-like investments has never been more appealing, pushing investors to reconsider riskier assets such as stocks.

While the Fed may opt to press the hold button this month, the end of rate hikes has not been yet declared. Indeed, the possibility that interest rates could remain high for far longer than many predicted only a few months ago appears to be becoming more realistic.

The resilience of the U.S. economy in recent times has left many economists and analysts scratching their heads, prompting them to adjust their growth projections.

This, in turn, has made the prospect of a looming recession seem even more remote. Consequently, we’ve witnessed a spike in U.S. Treasury yields, with the 2-year yield recently breaking the 5% barrier once more.

Read Also: Fed Scrambles To Revise 2023 Projections As US Economy Surges Beyond Expectations

Chart: 2-Year Treasury Yield & Fed Funds Rate

Investors Flock To Short-Term Bond ETFs

The allure of cash-like investment options, now offering high returns, has gripped the attention of investors.

August saw an astonishing $7 billion flow into ultra-short bond ETFs, marking a stark turnaround from the capital flight observed in the preceding four months.

And as we step into the first week of September, the trend of cash-like ETFs attracting substantial investments remains steadfast.

Here are five short-term Bond ETFs that not only allow you to capture returns but also act as a protective shield against potential downturns in the stock market.

1. iShares 0-3 Month Treasury Bond ETF SGOV
   – Description: This ETF zeroes in on ultra-short-term U.S. Treasury bills, delivering an ultra-low-risk haven for stability-seeking investors.
   – Asset Under Management (AUM): $14.2 billion
   – Performance year-to-date: 0.2% as of Sept.7, 2023
   – 1-month flows: $1.9 billion
   – 1-week flows: $220 million
   
2. Goldman Sachs Access Treasury 0-1 Year ETF GBIL
   – Description: This ETF tracks U.S. Treasury securities with maturities of 0 to 1 year, presenting a short-term, low-risk investment avenue.
   – AUM: $5.99 billion
   – Performance year-to-date: 0.1% as of Sept. 7, 2023
   – 1-month flows: $573 million
   – 1-week flows: $38 million
   
3. SPDR Portfolio Short Term Treasury ETF SPTS
   – Description: This ETF offers investors a portfolio of short-term U.S. Treasury securities, combining a low-risk profile with shorter durations.
   – AUM: $5.54 billion
   – Performance year-to-date: -0.69% as of Sept. 7, 2023
   – 1-month flows: $64 million
   – 1-week flows: $127 million
   
4. iShares 1-3 Year Treasury Bond ETF SHY
   – Description: This ETF provides exposure to U.S. Treasury securities with maturities spanning 1 to 3 years, offering a conservative option with slightly longer durations.
   – AUM: $26 billion
   – Performance year-to-date: -0.4% as of Sept. 7, 2023
   – 1-month flows: $276 million
   – 1-week flows: $154 million
   
5. iShares 1-5 Year Investment Grade Corporate Bond ETF IGSB
   – Description: This ETF grants investors access to a diversified portfolio of investment-grade corporate bonds spanning 1 to 5 years, striking a balance between corporate credit risk and relatively shorter durations.
   – AUM: $22.4 billion
   – Performance year-to-date: 0.2% as of Sept. 7, 2023
   – 1-month flows: -$1.1 billion
   – 1-week flows: -$486 million

Now Read: Why Is The US Dollar On Fire Despite Fed’s Steady Interest Rate Signals?