1BIL, SHV : Are Ultra-Short Bond ETFs Becoming The New Savings Account?

U.S. investors are increasingly holding their cash in cash-like ETFs as short-term yields have remained high and interest rate uncertainty has lingered.

The total assets of money market funds, a gauge of where investors are parking their cash, stood at around $7.8 trillion as of the week ended Feb 25, rising for the 18th time in 23 weeks, according to the latest available weekly data from the Investment Company Institute (ICI). The assets are up nearly 11.8% over the past year, fueled by both institutional and retail investor inflows.

Meanwhile, U.S. short-term Treasury yields have remained attractive. The yield on a 3-month Treasury bill was around 3.60% as of Feb 25, based on data from the Federal Reserve Bank of St. Louis, providing investors with a solid return on the ultra-short end of the yield curve compared to other safe havens.

These ETFs function like cash but still offer yield. In a world where the Fed’s rate outlook remains unclear, a growing cohort of investors doesn’t want to lock in duration risk. The Fed has maintained high policy rates, and markets continue to price in a chance of cuts later in 2026, reflecting investor caution among those seeking yield.

The record levels of money market assets also indicate risk-off sentiment. The flow of money into ultra-short funds tends to increase when investors seek liquidity and flexibility ahead of macro or policy events.

Not all strategists believe that the trend will continue if rates are cut. Cash-like ETFs are highly responsive to short-term yield changes: if the Fed starts cutting rates, yields on money market products and short-term Treasury ETFs will likely move lower in tandem.

For now, the high level of short-term yields and market volatility seems to be keeping cash-like ETFs popular as a tactical haven and, for some, a more permanent portfolio destination.

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