5 Best Ultra-Short-Term Bond ETFs

In an economic landscape marked by inflation and stagflation concerns, investors increasingly turn to ultra-short-term bond exchange-traded funds for stability and attractive yields.

These ETFs, which invest in fixed-income securities with very short durations, offer a compelling combination of low interest-rate risk and competitive returns.

This article explores the mechanics of what makes the best ultra-short-term bond ETFs and their suitability for various investors, concluding with an outlook for the remainder of 2025.

Understanding Ultra-Short-Term Bond ETFs

Ultra-short-term bond ETFs invest in fixed-income securities that mature in less than one year, including Treasury bills, corporate bonds and other debt instruments. By focusing on short maturities, these ETFs minimize exposure to interest-rate fluctuations, resulting in lower volatility compared to longer-duration bond funds.

3 Main Types of Ultra-Short-Term Bond ETFs

1. Treasury

Ultra-short-term Treasury bond ETFs specifically invest in U.S. Treasury securities, usually with maturities of three months or less, offering enhanced credit quality and liquidity. They are ideal for safety-focused investors, as they have minimal credit risk. The largest fund in this category is the SPDR Bloomberg 1-3 Month T-Bill ETF (BIL).

2. Corporate

These funds typically hold high-quality, short-duration corporate bonds. Ultra-short-term corporate bond ETFs may be suitable for investors seeking slightly higher yields than Treasuries, with some additional credit risk. The largest fund in this category is the JPMorgan Ultra-Short Income ETF (JPST).

3. Broad Market

Often actively managed, broad market ultra-short-term bond ETFs typically hold a mix of Treasuries, corporate bonds, commercial paper and other short-term debt instruments. These funds may be best for investors who want flexibility and professional management in a short-term strategy. An example is the PIMCO Enhanced Short Maturity Active ETF (MINT).

How to Choose the Best Ultra-Short-Term Bond ETFs

When selecting the best ultra-short-term bond ETF, investors and advisors generally focus on the following top criteria.  

1. Yield (30-Day SEC Yield)

This measures the ETF’s current income generation. Higher yields are attractive, especially in inflationary or high-rate environments. However, a higher yield generally translates to higher credit risk.

2. Credit Quality

Look at the underlying bonds’ credit ratings. ETFs holding Treasurys or high-grade corporate bonds tend to be lower-risk than those with junk-rated debt.

3. Expense Ratio

Since returns are generally modest, low fees help preserve more of the yield for the investor.

5. Liquidity and Trading Volume

Higher average daily volume and tighter bid-ask spreads make trading more efficient and cost-effective.  

6. Assets Under Management

Larger ETFs with greater AUM often have better liquidity, more consistent tracking and lower trading costs.

Top 5 Best Ultra-Short-Term Bond ETFs

While investors may have different needs for holding these funds in their portfolios, here are the best ultra-short-term bond ETFs based upon a blend of top selection criteria, including yield, expense ratio, credit quality and assets under management.

Data as of April 9, 2025. Past performance is no guarantee of future results.

Pros and Cons of Investing in Ultra-Short-Term Bond ETFs

Ultra-short-term bond ETFs offer several potential advantages, including stability and attractive yields, but these fixed-income funds are not for everyone. Here are the pros and cons to consider.

Pros

• Stability: Due to their short durations, these ETFs are less sensitive to interest-rate changes, resulting in lower price volatility.  
• Liquidity: They offer high liquidity, making them suitable for investors seeking quick access to their funds.  
• Attractive Yields: In the current economic environment, these ETFs provide competitive yields compared to traditional savings accounts or money market funds.  

Cons

• Lower Return Potential: While they offer stability, the return potential is generally lower than that of longer-duration or higher-risk investments.  
• Credit Risk: ETFs investing in corporate bonds may be exposed to credit risk, especially those holding lower-rated securities.  
• Inflation Risk: While ultra-short-term bond ETFs can be good investments to hold during high or rising inflation, their returns may not keep pace with inflation over the long term.

Outlook for Ultra-Short-Term Bond ETFs in 2025

Ultra-short-term bond ETFs have attracted massive inflows in 2025, reflecting investor preference for lower-duration assets amid economic uncertainty. The Federal Reserve's monetary policy and inflation trends will continue to influence the performance of these ETFs.  

Should interest rates remain relatively high and economic conditions remain uncertain, ultra-short-term bond ETFs are likely to maintain their appeal, offering a balance of stability and yield. However, investors should remain vigilant regarding credit quality and stay informed about macroeconomic developments that could impact fixed-income markets.

In summary, ultra-short-term bond ETFs present a viable option for investors seeking stability and competitive yields in a challenging economic environment. By understanding their characteristics, benefits and risks, investors can make informed decisions aligned with their financial objectives.