Hide money in this ultra-short bond ETF as rates rise

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According to Bankrate, the best rate is at 0.56%, which will not make an investor hungry for return hesitate. However, another option to consider is short-term bond funds.

Investors can put cash in short-term bond funds instead of earning 0% returns in a savings account that pays no interest or hiding money under the bed. They can also use stocks for even higher gains, but given the volatility in the market lately, that’s never a guarantee.

Thus, obtaining more yield in the short term while limiting the 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), that’s almost double what money market accounts offer these days.

In terms of the fund, TBUX invests in a diversified portfolio of high-quality short-term corporate and government securities, asset-backed securities and bank bonds. In order to limit credit risk, the fund invests at least 80% in bonds, and essentially all securities purchased by the fund will be rated investment grade at the time of purchase.

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

Protect yourself against rising interest rates

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

Safe haven Treasuries rose across all areas, both short and long of the yield curve. To help mitigate interest rate risk and concentration risk, TBUX allocates sparingly to a number of debt securities, with the highest allocation being Japanese Treasuries with a minimum allocation of 1.25% of assets .

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

For more news, insights and strategy visit the Active ETF channel.

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