10 Best Short-Term Bond ETFs Of May 2024

The SPDR Portfolio Short Term Corporate Bond ETF has outperformed its Morningstar category’s average over the past one, three, five and 10 years. Its SEC yield is roughly 70% higher than its dividend yield, showing that its yield has been uptrending. And with an average effective duration of less than two years, investors get a high yield along with decent share price stability along with decent yield.

Nearly 100% of SPSB’s holdings are investment grade and its expense ratio is low. The fund offers steady cash flow and moderate capital appreciation potential, all from a fund in State Street Global Advisors’ well-known SPDR stable of ETFs. Plus, with roughly half of the portfolio maturing in two to three years, SPSB’s share price should avoid any big fall-off once interest rates decline.

For investors in higher tax brackets, the iShares Short-Term National Muni Bond ETF provides income that is exempt from federal taxes. Investors in higher-tax states such as California and New York might also find that a portion of the fund is also exempt from state and local taxes.

To see whether you’re better off in a taxable or tax-exempt fund, visit a tax equivalent yield online calculator to compare taxable and tax-exempt yields.

SUB holds nearly 3,000 municipal bond issues. It has an average effective duration of less than two years, indicating relative price stability for the fund even if interest rates rise. Another positive: SUB’s SEC yield is more than double its dividend yield, showing that the dividend yield has been on an uptrend. This is a high-quality fund with nearly the entire portfolio bearing credit ratings of AAA, AA and A.

The actively managed Vanguard Ultra-Short Bond ETF benefits from Vanguard’s famous low-fee structure. The fund owns more than 600 bonds, with an SEC yield that is presently about 50% higher than its dividend yield. This means yields are rising, making VUSB an attractive place to park money you’ll need in the short term.

The average effective duration of VUSB’s portfolio is 0.91, which means that if interest rates increase 1% over the next year, the fund is likely to decline about 1% in value. The fund’s holdings include highly rated corporate bonds. All of its rated securities are investment grade. A-rated bonds alone account for roughly 40% of the portfolio.

Do you like the security of U.S. Treasury bills? But you don’t want the hassle of buying new issues as the older ones mature each couple of months? If that’s you, check out the SPDR Bloomberg 1-3 Month T-Bill exchange-traded fund.

U.S. Treasury securities are exempt from state and local taxes. That’s especially helpful to residents of high-tax states. Yo, New Yorkers! Aloha, Hawaiians! Also, BIL levies a reasonable 0.135% expense ratio. That’s a small price for the convenience of capturing returns from the shortest-term government debt.

BIL’s average effective duration is a negligible 0.07 years. That’s less than one month. And that means the fund’s value will remain relatively stable if interest rates rise. This is an excellent pick for all of your cash-equivalent needs such as an emergency fund for upcoming bills and expenses.

The VanEck IG Floating Rate ETF is the sort of fund that is especially appealing at a time like this. How so? Floating rate notes, or FRNs, are in high demand during periods like now when interest rates are rising. The interest payments of these short-term corporate debt instruments “float,” rising and falling as the benchmark they’re tied to changes.

FLTR’s SEC yield, above 6%, is a sign that FLTR’s dividend yield has been heading higher. Already, the fund’s dividend yield is about one-third higher than its Morningstar category’s average yield. Plus, it distributes income monthly, a good feature for those seeking regular cash flow.

FLTR is also well diversified. While roughly 60% of its assets are issued by U.S.-based companies, this corporate debt fund includes securities from Australia, the U.K., Japan, Canada, France and Scandinavia. Just remember: the Fed may be nearing the end of its rate raising. Yields at funds like FLTR won’t keep rising once the Fed stops hiking.

The iShares Treasury Floating Rate Bond ETF tracks the investment results of an index composed of U.S. Treasury floating rate bonds. The fund’s dividend yield is better than its Morningstar category. And with an ultralow average effective duration of 0.01 years, it maintains a relatively steady price.

TFLO’s treasury securities all enjoy a very high investment-grade rating of AA, so default risk generally isn’t a concern. Government securities are exempt from state and local taxes, making them a wise choice for those who live in a high tax area. The monthly income distributions are ideal for those seeking cash flow. Although yields are attractive now, be aware that when interest rates start to decline, so will the interest payments received from TFLO.

JPMorgan Ultra-Short Income ETF has outperformed its Morningstar category over the past two, three and five years. That’s thanks to a portfolio stocked with high-quality government and corporate debt. The fund’s dividend yield is nice but certainly not spectacular. Still, the higher SEC yield shows that yields are climbing.

JPST’s low 0.61 average effective duration promises a relatively stable price if interest rates rise more. The credit quality of the bonds is excellent. Roughly 80% of the portfolio holds a rating of AAA, AA or A. This fund is an attractive short-term fixed-income option for a diversified portfolio.

The Fidelity Limited Term Bond ETF owns investment-grade debt securities with an average maturity between two and five years. This approach works well for investors seeking higher returns without sacrificing credit quality. Almost all of the fund’s holdings are investment grade.

With its exposure to somewhat longer maturity but still short-term debt, FLTB offers the potential for capital appreciation when interest rates decline. The fund has an average effective duration of 2.56 years, which means that a 1% interest rate increase will result in a price decline of approximately 2.5%, and vice versa. Its SEC yield is a generous 5.45%.

Pimco’s Enhanced Short Maturity Active ETF offers a solid short-term bond fund focused on capital preservation, strong returns and liquidity. The 0.16-year average effective duration forecasts a relatively stable price. While the fund’s dividend yield is attractive, its higher SEC yield bodes well for an even better yield.

MINT is very well diversified with well over 600 holdings. It owns government debt and corporate bonds as well as cash and cash equivalents. Roughly 70% of MINT holdings are from the U.S. The remainder are mainly from developed markets, including Europe, Japan, South Korea and Australia. Decent income and low volatility from a fund run by the well-known Pimco shop—that’s a winning combination.

The Franklin Senior Loan ETF pays a hefty dividend yield. That’s because at least 80% of its net assets are senior loans and investments that provide exposure to senior loans. And senior loans usually pay floating interest rates. They rise as interest rates go higher—and of course that’s exactly what rates have been doing since March 2022.

Senior loans also typically have built-in safety for investors. The “senior” part of their name means that if the issuer goes bankrupt, those loans must be repaid before claims by other creditors, preferred stockholders and common stockholders are settled.

FLBL focuses on income before capital preservation, much less capital appreciation. Nevertheless, FLBL’s total return outperformed its Morningstar bank loan fund category so far this year and over the past one, three and five years. Further, FLBL has a tiny average effective duration of 0.14 years, which means its share price should remain steady even as interest rates shift.

With FLBL’s focus on senior loans, not surprisingly roughly nearly all of its holdings are below investment grade. Still, FLBL’s outperformance reflects its prioritization of income over capital preservation, much less capital appreciation.