$12.8 Billion Flows into U.S. Ultra-Short Bonds

U.S. investor funds are shifting from long-term government bonds and cash into ultra-short bonds and money market products. According to CNBC, the limited yields on cash-like assets and the volatility of long-term bonds are prompting investors to move their funds into ultra-short bond funds and money market products. Christopher Coolidge, Chief Investment Officer at Brookwood Investment Group, stated that he increased the cash allocation in his model portfolio from about 2% in June to around 5%. Long-term government bonds are not serving as a buffer in the portfolio, and the average annual return over the past five years for the iShares 20+ Year Treasury Bond ETF has been -6.7%. Investors prefer products with shorter maturities and lower interest rate sensitivity, with ultra-short bond funds offering yields 75 to 110 basis points higher than money market ETFs. According to Morningstar, $12.8 billion flowed into ultra-short bond ETFs in July, while the assets of money market ETFs reached $24 billion by the end of July. This shift in funds reflects the sentiment across U.S. risk assets, which could also impact cryptocurrencies like Bitcoin and Ethereum.

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