Seeking Safety: Ultra-Short-Term Bond ETFs Quietly Surge

Editor's note: This is the first in a series of articles running all week on fixed-income ETFs.

Ultra-short-term bond ETFs are quietly having a breakout year.

Two of the largest—the iShares 0-3 Month Treasury Bond ETF (SGOV) and the SPDR Bloomberg 1-3 Month T-Bill ETF (BIL)—rank among the top U.S.-listed exchange-traded funds by year-to-date inflows, as investors flock to safe havens amid economic uncertainty and volatile markets.

These funds invest in debt maturing in less than a year, with SGOV and BIL focusing exclusively on Treasury bills. That makes them among the safest investments in the market, with minimal interest rate risk and no credit risk.

While some investors are using ultra-short-term bond ETFs as short-term safe havens, others are embracing them as cash alternatives, a category historically dominated by money market mutual funds.

According to the Investment Company Institute, money market mutual funds currently manage just over $7 trillion, while ultra-short-term bond ETFs collectively hold $188 billion across 41 products.

SGOV & BIL Gain Momentum

Ultra-short-term bond ETFs are a fraction of the size, but their momentum is undeniable; the category has seen $39.7 billion in inflows year to date through June 12 and $60.1 billion over the past 12 months.

Nearly half of the assets in ultra-short-term bond ETFs sit in SGOV and BIL alone, which now command a combined $93 billion.

Other major players include the iShares Short Treasury Bond ETF (SHV), with $20.4 billion, and the actively managed $31.5 billion JPMorgan Ultra-Short Income ETF (JPST), which invests in ultra-short corporate debt for a modest yield boost, albeit at the cost of slightly more credit risk.

As ETFs continue to disrupt the traditional mutual fund industry, ultra-short-term bond ETFs may slowly chip away at the dominance of money market mutual funds. ETFs offer the advantage of intraday liquidity, while money market mutual funds are priced only once a day.

Money Market ETFs Debut

That said, money market funds are evolving, too. The first money market ETF, the Texas Capital Government Money Market ETF (MMKT), debuted in 2024.

Since then, BlackRock has joined the space with the iShares Government Money Market ETF (GMMF) and the iShares Prime Money Market ETF (PMMF).

These funds invest in ultra-short-term debt and follow SEC Rule 2a-7, which imposes strict requirements on credit quality, liquidity and maturity to qualify as a true "money market fund."

Unlike money market mutual funds, which typically maintain a stable $1 net asset value, ETFs (even those labeled “money market”) have a floating NAV. In practice, however, their prices fluctuate very little, and the intraday tradability is a compelling feature for institutional and retail investors alike.

The technical distinction between money market ETFs and other ultra-short-term bond ETFs is mostly academic for investors. As long as a fund sticks to government T-bills or similar high-quality, short-term debt, the difference is negligible.

What matters is that ETFs are emerging as a credible alternative to money market mutual funds for investors seeking cash-like exposure with all the benefits of the ETF structure.