Investors Are Flocking to Shorter-Term Bond Funds. These Are The Best Ones

When it comes to bonds, investors are going short. Very short.

According to the latest flows data, investors are specifically flocking to mutual funds and exchange-traded funds in the ultrashort bond category. In fact, March was a historic month for ultrashort-bond funds, which attracted their largest monthly inflow on record, $24 billion, representing over 85% of taxable-bond net inflows for the month, reports Morningstar analyst Drew Carter. Carter notes: “With the Iran war and the subsequent closing of the Strait of Hormuz, a systematically important trade route for global oil, inflation risks have reemerged as a primary focus for investors, leading to decreased allocations to long-term bonds and a rotation toward ultrashort bonds that offer very limited duration.”

But is investing in shorter-term bonds a good idea today?

“I think there’s a good rationale for those investors who are nearing or in drawdown mode to maintain a modest, strategic position in short-term bonds, since they have less interest rate risk than intermediate or long-term bonds,” admits Morningstar director of financial and retirement planning Christine Benz. In fact, she includes an allocation to shorter-term bonds in her model portfolios for retirees. “But for those investors who are not near drawdown, I’d suggest sticking with intermediate-term core bond funds, given their better return potential over time and their still-modest volatility,” she adds.

If you’d like to add some shorter-term bonds to your portfolio, there are many good short-term and ultrashort bond mutual funds and ETF to choose from.

What Are Short-Term and Ultrashort Bond Funds?

Short-term bond funds and ETFs invest primarily in corporate and other investment-grade US fixed-income issues and typically have durations of 1.0 to 3.5 years, while ultrashort portfolios will invest in issues that have durations of less than 1.0 year. This group also includes short-government portfolios that have at least 90% of their bond holdings in bonds backed by the US government or by government-linked agencies. Short-term bond funds and ETFs are attractive to fairly conservative investors because they are less sensitive to interest rates than portfolios with longer durations. Short term is defined as 25% to 75% of the 3.0-year average effective duration of the Morningstar Core Bond Index.

The Best Short-Term and Ultrashort Bond Funds and ETFs to Buy in 2026

To find the best short-term and ultrashort bond funds and ETFs to buy, we screened for the lowest-cost primary share classes earning a

of Gold with 100% analyst coverage. All the funds and ETFs on the list fall into the short-term, ultrashort, or short-government bond and have at least $100 million in assets. All data is as of April 14.

1. Baird Short-Term Bond Fund BSBSX
2. Baird Ultra Short Bond Fund BUBSX
3. JPMorgan Limited Duration Bond ETF JPLD
4. PGIM Short Duration Multi-Sector Bond ETF/Fund PSDM/SDMZX
5. Pimco Enhanced Short Maturity Active Exchange-Traded Fund MINT
6. Pimco Enhanced Short Maturity Active ESG Exchange-Traded Fund EMNT
7. Pimco Low Duration Fund PTLDX
8. Pimco Short Asset Investment Fund PAIDX
9. Schwab Short-Term US Treasury ETF SCHO
10. State Street SPDR Portfolio Short Term Treasury ETF SPTS
11. Vanguard Short-Term Corporate Bond Index Fund/ETF VSCSX/VCSH
12. Vanguard Short-Term Treasury Index Fund/ETF VGSH/VSBSX

Morningstar expects the highly rated short-term and ultrashort bond funds on this list to outperform their peers over a full market cycle. But even though all the funds on our list fall into the same category, they may practice different strategies and therefore behave differently from each other. Investors need to do some homework to understand exactly what a particular fund invests in before buying.

Here’s a quick look at each of the best short-term and ultrashort bond funds and ETFs. Be sure to review a fund’s complete report for more details.

Baird Short-Term Bond Fund

• Index Fund: No
• : US Fund Short-Term Bond

• Prospectus Net Expense Ratio

  : 0.55%

• 12 Month Yield: 4.05%

Strong execution and a process whose incremental advantages add up make Baird Short-Term Bond a top choice in the short-term bond Morningstar Category.

Baird’s 10-person taxable bond management team may not be flashy, but its members excel as a group. Four senior leaders, including co-CIOs Warren Pierson and Jay Schwister, provide a mix of macroeconomic and investment guidance. The other six managers and their respective analyst benches focus on bond-picking and building the portfolio. Jeffrey Schrom, Andrew O’Connell, and Abhishek Pulakanti are corporate credit experts, Meghan Dean and Patrick Brown specialize in mortgage- and asset-backed securities, while M. Sharon deGuzman monitors portfolio construction and risk metrics.

The team concentrates on finding reliable sources of excess return. Since Baird believes interest rate calls are not one of them, the team matches the Bloomberg US Government/Credit 1-3 Year Index’s overall interest rate sensitivity, or duration, and then allocates to the bond sectors with the most attractive combination of underlying fundamentals, valuations, and liquidity. The result is a portfolio that tends to traffic heavily in corporate bonds relative to its index and most peers, especially those bonds with BBB ratings, while also consistently finding value in securitized bonds, including higher-quality nonagency residential and commercial MBS.

Discipline and simplicity are hallmarks of the approach. For example, rather than using derivatives to replicate the benchmark’s duration, the team analyzes the impact of each trade and chooses specific Treasuries and mortgage exposures to keep the overall portfolio’s interest rate sensitivity in line with the benchmark’s. Similarly, the team does not use index-level credit default swaps but sticks to cash bonds that offer attractive yields relative to their risk and dials exposure up when credit spreads widen and down when they tighten.

Thanks to its modest fee hurdle and effective style, multiyear performance has been consistently competitive if not superior. Over the past two decades through January 2026, the institutional share class’ rolling five-year returns have beaten the benchmark and peer median (based on each fund’s cheapest share class) in nearly 92% and 64% of them, respectively.

Read Morningstar’s full report on the Baird Short-Term Bond Fund.

Baird Ultra Short Bond Fund

• Index Fund: No
• : US Fund Ultrashort Bond

• Prospectus Net Expense Ratio

  : 0.40%

• 12 Month Yield: 4.10%

Strong execution and a process whose incremental advantages add up make Baird Ultra Short Bond a top choice in the ultrashort bond Morningstar Category.

Baird’s 10-person taxable bond management team may not be flashy, but its members excel as a group. Four senior leaders, including co-CIOs Warren Pierson and Jay Schwister, provide a mix of macroeconomic and investment guidance. The other six managers and their respective analyst benches focus on bond-picking and building the portfolio. Jeffrey Schrom, Andrew O’Connell, and Abhishek Pulakanti are corporate credit experts, Meghan Dean and Patrick Brown specialize in mortgage- and asset-backed securities, while M. Sharon deGuzman monitors portfolio construction and risk metrics.

The team concentrates on finding reliable sources of excess return. Since Baird believes interest rate calls are not one of them, the team matches the Bloomberg Short-Term US Government/Corporate Index’s overall interest rate sensitivity, or duration, and then allocates to the bond sectors with the most attractive combination of underlying fundamentals, valuations, and liquidity. The result is a portfolio that tends to traffic heavily in corporate bonds relative to its index and most peers, especially those bonds with BBB ratings, while also consistently finding value in securitized bonds, primarily ABS and higher-quality nonagency residential and commercial MBS.

Discipline and simplicity are hallmarks of the approach. For example, rather than using derivatives to replicate the benchmark’s duration, the team analyzes the impact of each trade and chooses specific Treasuries and securitized exposures to keep the overall portfolio’s interest rate sensitivity in line with the benchmark’s.

Thanks to its modest fee hurdle and effective style, multiyear outperformance has been consistent. From the fund’s year-end 2013 inception through January 2026, the institutional share class’ rolling three-year returns have beaten the benchmark and peer median (based on each fund’s cheapest share class) in 98.2% and 83.6% of 110 rolling periods, respectively.

Read Morningstar’s full report on the Baird Ultra Short Bond Fund.

JPMorgan Limited Duration Bond ETF

• Index Fund: No
• : US Fund Short-Term Bond

• Prospectus Net Expense Ratio

  : 0.24%

• 12 Month Yield: 4.22%

Longtime lead manager Michael Sais plans to retire in April 2026 but remains on the strategy until then. That, plus J.P. Morgan’s depth of talent and a thoughtful transition plan here, keeps this exchange-traded fund’s appeal intact.

Sais, the lead manager on the strategy since 1995, announced his April 2026 retirement a year in advance, providing time to facilitate a smooth transition to Cary Fitzgerald and securitized specialist Sajjad Hussain. The firm named Fitzgerald as a comanager on the ETF on April 1, 2025, and had added Hussain as a comanager in November 2024. The decision to cede the reins to this duo makes sense given the portfolio’s securitized debt focus. Fitzgerald comes with solid credentials as J.P. Morgan’s head of short duration; he joined the firm in 2000. Hussain has limited management experience, yet his understanding of securitized markets runs deep, as the former head of the firm’s securitized research team. This pair should be able to get up to speed with the help of Sais and comanager Bob Manning, who’s been on the strategy since 2013 and has more than 25 years of industry experience.

Disciplined security selection and stable interest rate sensitivity are the ETF’s key features, which result in lower volatility than most peers. The strategy avoids Treasuries, which make up 70% of the Bloomberg 1-3 Year US Government/Credit Index. Instead, the portfolio favors various types of securitized debt designed to offer an attractive yield and a stable duration profile, limiting extension in rising rate periods. Macro themes guide broad positioning, while diligent bottom-up security selection drives portfolio construction. Nonagency mortgage-backed securities, commercial mortgage-backed securities, asset-backed securities, and collateralized loan obligations (40%-80% of assets) and agency MBS and collateralized mortgage obligations (25%-50%) constitute the bulk of the portfolio, while investment-grade credit plays a supporting role (0%-15%). Duration, a measure of the portfolio’s level of interest rate risk, has stayed between 1.2 and 2.0 years regardless of the index’s duration, and is frequently shorter than the average peer’s 2.2 years.

This mix has produced a higher-yielding, higher-quality portfolio versus peers that more prominently feature corporate bonds—38.5% of assets on average versus the ETF’s 7.2% as of June 2025. Moreover, the portfolio’s 72.2% in AAA rated debt was higher than the average peer’s 26.0%.

The strategy has delivered compelling long-term results. Over the trailing 15 years, the ETF’s 2.7% annualized return through August 2025 beat its unique short-term bond Morningstar Category’s median 2.3% and the index’s 1.6%. This top-quartile result was even better when adjusting for risk; its Sharpe ratio was second best among 90 category rivals with track records as long. While the ETF has held up in periods when credit spreads widened, its shorter duration may cause it to lag when long-term yields fall.

Read Morningstar’s full report on the JPMorgan Limited Duration Bond ETF.

PGIM Short Duration Multi-Sector Bond ETF

• Index Fund: No
• : US Fund Short-Term Bond

• Prospectus Net Expense Ratio

  : 0.40%

• 12 Month Yield: 4.87%

PGIM Short Duration Multi-Sector Bond takes a flexible approach that relies on strong fundamental research and a robust risk-management infrastructure. Offered through a long-standing mutual fund and a newer exchange-traded fund, the strategy remains an attractive option for short-term bond investors willing to tolerate episodic volatility in exchange for higher income.

The firm’s multisector portfolio management team shepherds the strategy. That includes, but is not limited to, a trio of industry veterans in Gregory Peters, Richard Piccirillo, and Robert Tipp. Each named to the mutual fund since its first full year in 2014, the managers offer distinct areas of expertise spanning credit, securitized debt, and global rates. Together, with supporting multisector portfolio-construction experts, they set risk targets for multisector portfolios like this one within the confines of the strategy’s 250-basis-point tracking error budget relative to its Bloomberg US Government/Credit 1-3 Year Index. Among those involved in day-to-day portfolio construction are comanagers Matthew Angelucci and Tyler Thorn, both of whom were named to the fund in September 2023 amid the departures of two experienced managers. Meanwhile, the multisector team draws on standout sector-specialist teams across the firm’s fixed-income platform for bottom-up security ideas that fit their desired risk allocations.

The group also manages PGIM Total Return; the main difference between the two strategies is their respective benchmarks. Whereas this one uses a 1–3-year bogy, PGIM Total Return employs the longer-duration Bloomberg US Aggregate Bond Index.

The team’s tight handle on risk management inspires confidence. That’s important not only due to the strategy’s relatively risky and complex opportunity set but also given the group’s penchant for derivatives as critical risk-management tools. Through heavy use of futures and swaps, multisector managers regularly hedge out interest rate risk from longer-dated debt to maintain a short-duration profile, an approach that could spell trouble if not conducted with the necessary precision.

This strategy stands out among its short-term bond Morningstar Category peers in large part due to its expanded opportunity set. It will often embrace credit risk compared with its more circumspect peers (the November 2025 portfolio’s 16% stake in below-investment grade and nonrated debt dwarfed its median peer’s 3%) while also maintaining a healthy portion of high-quality securitized debt.

That combination has proven to be a winning one across market cycles. The mutual fund’s Z shares’ Sharpe ratio, a measure of volatility-adjusted returns, ranked in the top quartile of distinct peers over the trailing three-, five-, and 10-year periods through December 2025.

Read Morningstar’s full report on the PGIM Short Duration Multi-Sector Bond ETF.

Pimco Enhanced Short Maturity Active Exchange-Traded Fund

• Index Fund: No
• : US Fund Ultrashort Bond

• Prospectus Net Expense Ratio

  : 0.36%

• 12 Month Yield: 4.48%

Veteran leadership, specialized short-term expertise, effective collaboration, and a time-tested process makes Pimco Enhanced Short Maturity Active ETF a best-in-class selection among ultrashort bond peers. This strategy, which is more constrained than its sibling Pimco Short-Term, also includes a UCITS version.

Lead manager Jerome Schneider heads an impressive team of dedicated ultrashort and liquidity markets specialists. Schneider is well known as the face of the firm’s short-term strategies and skillfully collaborates with comanagers Andrew Wittkop and Nate Chiaverini, accomplished Pimco veterans whose expertise in rates/derivatives and corporate credit respectively creates complementary strengths. Strong collaboration among a dozen short-term specialists drives the strategy’s success, and the strategic addition of these comanagers in July 2021 enhanced depth and alleviated key-person risk with Schneider. The team benefits from abundant resources and draws extensively on Pimco’s world-class global investment platform of analysts, traders, macroeconomic experts, and risk managers.

The strategy’s proven process, which focuses on short-term and liquidity markets, stands out versus peers. Teamwork is the key to the strategy’s success, yet consistent analytical inputs strongly reinforce liquidity and capital preservation objectives. The team ably leverages its comprehensive global toolkit, which is deeper than most peers. The comanagers incorporate insights from the firm’s renowned macroeconomic forecasts to construct portfolios with securities designed to maximize yield and total return potential.

Robust corporate and structured products research teams actively support the managers and provide valuable bottom-up intelligence, as investment-grade credit and securitized debt feature prominently (typically 70%-90% of assets) and deliver a yield advantage over peers. The exchange-traded fund avoids less conventional areas, such as high-yield bonds, non-US developed debt, and non-US currencies, but can invest up to 5% of assets in emerging-market debt to complement core holdings. The managers demonstrate flexibility by dynamically adjusting portfolio duration across their zero-to-one-year range, and while the ETF extensively uses derivatives, Pimco has consistently proved its ability to manage these instruments effectively.

The strategy touts a solid long-term track record. Over Schneider’s tenure from December 2009, the US-domiciled ETF’s 1.9% annualized gain through July 2025 outperformed the unique ultrashort bond Morningstar Category peers’ median 1.8% result and landed ahead of most peers. Volatility-adjusted results proved equally solid, with the Sharpe ratio in the top half of rivals. While this dynamic approach has generated slightly higher volatility than peers, its occasional stumbles have been well contained.

Read Morningstar’s full report on the Pimco Enhanced Short Maturity Active Exchange-Traded Fund.

Pimco Enhanced Short Maturity Active ESG Exchange-Traded Fund

• Index Fund: No
• : US Fund Ultrashort Bond

• Prospectus Net Expense Ratio

  : 0.24%

• 12 Month Yield: 4.23%

Veteran leadership, specialized short-term expertise, effective collaboration, and a time-tested process make Pimco Enhanced Short Maturity Active ESG ETF a best-in-class selection among ultrashort bond peers. This exchange-traded fund is more constrained than its sibling, Pimco Short-Term.

Lead manager Jerome Schneider heads an impressive team of dedicated ultrashort and liquidity markets specialists. Schneider is well known as the face of the firm’s short-term strategies and skillfully collaborates with comanagers Andrew Wittkop and Nate Chiaverini, accomplished Pimco veterans whose expertise in rates/derivatives and corporate credit, respectively, creates complementary strengths. Strong collaboration among a dozen short-term specialists drives the strategy’s success, and the strategic addition of these comanagers in July 2021 enhanced depth and alleviates key-person risk with Schneider. Also, comanager Jelle Brons, a global credit specialist, focuses on ESG implementation. The team benefits from abundant resources and draws extensively on Pimco’s world-class global investment platform of analysts, traders, macroeconomic experts, ESG analysts, and risk managers.

The strategy’s proven process, which focuses on short-term and liquidity markets, stands out versus peers. Teamwork is the key to the strategy’s success, yet consistent analytical inputs strongly reinforce liquidity and capital preservation objectives. The team ably leverages its comprehensive global toolkit, which is deeper than most peers. The comanagers incorporate insights from the firm’s renowned macroeconomic forecasts to construct portfolios with securities designed to maximize yield and total return potential.

Robust corporate and structured products research teams actively support the managers and provide valuable bottom-up intelligence, as investment-grade credit and securitized debt feature prominently (typically 65%-95% of assets) and deliver a yield advantage over peers. The ETF avoids less conventional areas, such as high-yield bonds, and non-US currencies but can invest up to 10% of assets in non-US developed markets and 5% in emerging-market debt to complement core holdings. The managers demonstrate flexibility by dynamically adjusting portfolio duration across their zero-to-one-year range, and while the ETF extensively uses derivatives, Pimco has consistently proved its ability to manage these instruments effectively.

The strategy touts a solid long-term track record. Throughout Schneider’s tenure from January 2020, the ETF’s 2.9% annualized gain through July 2025 matched the unique ultrashort bond Morningstar Category peers’ median result. Volatility-adjusted results proved equally solid, with the Sharpe ratio near that of its typical peer. Over this period, the fund’s tamer approach generated one of the lowest standard deviations in the category. In most stressed periods, though, the ETF’s drawdown was near its category average.

Read Morningstar’s full report on the Pimco Enhanced Short Maturity Active ESG Exchange-Traded Fund.

Pimco Low Duration Fund

• Index Fund: No
• : US Fund Short-Term Bond

• Prospectus Net Expense Ratio

  : 0.48%

• 12 Month Yield: 4.22%

The strategy’s yearslong defensive posture has come at the cost of forgone total returns during risk-friendly markets, but Pimco Low Duration should offer investors a smoother ride over the long term. The strategy retains its People and Process ratings of High and Above Average, respectively.

The strategy’s manager bench is deep. Jerome Schneider, head of Pimco’s short-term desk, had long comanaged the strategy with Scott Mather, who left the firm at the end of 2022. Two additional comanagers, who joined Schneider in 2022, were also a welcome addition. Marc Seidner, CIO of nontraditional strategies and member of the firm’s investment committee, has almost four decades of industry experience and also manages Pimco’s Dynamic Bond strategy. Credit and environmental, social, and governance specialist Jelle Brons was already a named manager on Pimco Low Duration ESG and joined Pimco Low Duration. Veteran mortgage group skipper Daniel Hyman, who manages the firm’s US-domiciled GNMA and government securities and mortgage opportunities funds, stepped onto the low-duration US vehicle as well. That diversity of expertise is a strong enhancement here. This portfolio invests in traditional core sectors—government debt, mortgages, and investment-grade corporates—but also takes modest positions in high-yield, developed- and emerging-markets debt, and currencies. The managers start with the firm’s macroeconomic forecasting and bottom-up analysis to determine interest rate, yield-curve, currency, country, sector, and security-level decisions. Themes prominent in most other Pimco portfolios surface here, too, though the strategy’s higher-risk positions, such as currency bets, are sized smaller to keep volatility in check.

The strategy has protected capital when it counted compared with those yield-chasing competitors that have courted risk in mid- and lower-quality corporate credit and niche asset-backed sectors. Such tactics have rewarded those offerings with fatter payouts in periods that favored risk-taking, while this team’s disciplined approach to managing credit risk and emphasizing the market’s most liquid sectors has produced comparatively modest returns but has still protected capital during times of trouble. The overall record under Schneider’s watch since 2014 is not particularly impressive on a total return basis, but this strategy’s defensive merits should become apparent when markets inevitably turn rocky.

Read Morningstar’s full report on the Pimco Low Duration Fund.

Pimco Short Asset Investment Fund

• Index Fund: No
• : US Fund Ultrashort Bond

• Prospectus Net Expense Ratio

  : 0.39%

• 12 Month Yield: 4.16%

Veteran leadership, specialized short-term expertise, effective collaboration, and a time-tested process make Pimco Short Asset Investment a best-in-class selection among ultrashort bond peers. This strategy is the most constrained of Pimco’s ultrashort offerings.

Lead manager Jerome Schneider heads an impressive team of dedicated ultrashort and liquidity markets specialists. Schneider is well known as the face of the firm’s short-term strategies and skillfully collaborates with comanagers Andrew Wittkop and Nate Chiaverini, accomplished Pimco veterans whose expertise in rates/derivatives and corporate credit, respectively, creates complementary strengths. Strong collaboration among a dozen short-term specialists drives the strategy’s success, and the strategic addition of these comanagers in July 2021 enhanced depth and alleviated key-person risk with Schneider. The team benefits from abundant resources and draws extensively on Pimco’s world-class global investment platform of analysts, traders, macroeconomic experts, and risk managers.

The strategy’s proven process, which focuses on the short-term and liquidity markets, stands out versus peers. Teamwork is the key to the strategy’s success, yet consistent analytical inputs strongly reinforce liquidity and capital preservation objectives. As the most constrained of Pimco’s ultrashort offerings, this strategy avoids below investment-grade debt, non-US-developed, and non-US-dollar currencies. The team ably leverages its comprehensive global toolkit, which is deeper than most peers. The comanagers incorporate insights from the firm’s renowned macroeconomic forecasts to construct portfolios with securities designed to maximize yield and total return potential.

Robust corporate and structured products research teams actively support the managers and provide valuable bottom-up intelligence, as investment-grade credit and securitized debt feature prominently here, which are limited to 60% and 20% of assets, respectively, and contribute to a competitive yield versus peers. The managers demonstrate flexibility by dynamically adjusting portfolio duration across their zero-to-1.5-year range, and while the fund modestly uses derivatives, Pimco has consistently proven its ability to manage these instruments effectively.

The strategy touts a solid long-term track record, although the fund’s extra precautions versus its sibling strategy, Pimco Short-Term, may cause it to lag during markets that reward competitors that take more credit risk. Throughout Schneider’s tenure since June 2012, the institutional shares’ 2.1% annualized gain through July 2025 outperformed the unique ultrashort bond Morningstar Category peer’s median 2.0% result. Volatility-adjusted results proved solid, with the Sharpe ratio better than three-fifths of rivals. While this dynamic approach has generated higher volatility than peers at times, its long-term volatility is near that of the category median.

Read Morningstar’s full report on the Pimco Short Asset Investment Fund.

Schwab Short-Term US Treasury ETF

• Index Fund: Yes
• : US Fund Short Government

• Prospectus Net Expense Ratio

  : 0.03%

• 12 Month Yield: 4.00%

Schwab Short-Term US Treasury ETF provides a cost-efficient portfolio of short-term Treasury bonds at a razor-thin expense ratio, making this a compelling option.

The fund tracks the Bloomberg US Treasury 1-3 Year Index, which includes Treasury bonds with between one and three years remaining to maturity. Issuing activity by the US Treasury Department will dictate the portfolio’s composition. Market-value-weighting emphasizes the largest and easiest-to-trade issues by harnessing the market’s collective wisdom on the relative value of each bond.

The Treasury market is highly efficient and liquid, reflecting the market’s inflation and interest rate expectations. It is difficult for active managers to gain a durable edge and recoup their fees in this market without also taking greater risks than this portfolio. An ultralow-risk fund charging mere basis points, like this one, presents a high hurdle for any active manager in the short-government Morningstar Category to beat.

Credit risk is virtually nonexistent since each Treasury holding is backed by the full faith and credit of the US government. This provides investors with a place of refuge when credit markets sour. With less risk comes less reward, though, and this fund may leave some yield on the table by not reaching for riskier bonds. While its long-term historical average yield lags its average category peer, a recently inverted short end of the yield curve means that this fund’s 12-month yield now slightly eclipses the category norm, thanks to its shorter duration profile. Its 12-month yield stood at 4.06%, compared with 4.00% for the category average, as of Dec. 31, 2025.

Interest rate risk is the only risk the portfolio is exposed to, but even that is kept under wraps by focusing on the short end of the US Treasury yield curve. The fund will lose value when interest rates rise, but with a lower average duration than most peers, that effect will be muted. Indeed, the fund fared more than a percentage point better than its typical short-government peer in the inflationary environment of 2022.

Read Morningstar’s full report on the Schwab Short-Term US Treasury ETF.

State Street SPDR Portfolio Short Term Treasury ETF

• Index Fund: Yes
• : US Fund Short Government

• Prospectus Net Expense Ratio

  : 0.03%

• 12 Month Yield: 3.97%

The Bloomberg 1-3 Year U.S. Treasury Index includes Treasury bonds with remaining maturities ranging from one to three years. Qualifying bonds must have at least USD 300 million in outstanding face value. The index is market-value-weighted and rebalances each month. Market value weighting emphasizes the largest and most liquid Treasuries while controlling turnover and the associated transaction costs. This results in a conservative portfolio that limits return potential but also caps risk.

The fund is relatively insulated from interest rate risk, given it tracks the short end of the Treasury yield curve. Its average effective duration was 1.9 years at the end of June 2025, or about six months less than its average peer. This means this strategy should be less affected than most peers when interest rates rise.

Credit risk is muted. Category peers are similarly safe, but many hold non-Treasury government bonds like agency mortgage-backed securities that carry prepayment risk. Treasuries do not. The portfolio holds only US Treasury securities, which are backed by the full faith and credit of the US government. This should ensure virtually no risk of default.

The politicization of the debt ceiling is a watchpoint, though. US debt has been downgraded to AA from AAA by the three largest ratings agencies. Moody’s, which downgraded US debt most recently in May 2025, cited concerns about rising government debt and no clear path to fix it. Still, the risk of default is very low, and investors should feel comfortable with the Treasury securities held in this portfolio.

Note: The Process Pillar rating and analysis are indirectly assigned by an analyst. When an analyst covers a passively managed vehicle that tracks a particular index, Morningstar associates the Process Pillar rating assigned to that vehicle with the index concerned. Morningstar then maps the Process Pillar associated with a given index to any other uncovered passive strategies that track the same index. This ensures that the analyst’s view is leveraged whenever available and promotes consistency when analyzing passive vehicles associated with a given index.

Read Morningstar’s full report on the State Street SPDR Portfolio Short Term Treasury ETF.

Vanguard Short-Term Corporate Bond Index Fund

• Index Fund: Yes
• : US Fund Short-Term Bond

• Prospectus Net Expense Ratio

  : 0.03%

• 12 Month Yield: 4.41%

Vanguard Short-Term Corporate Bond offers an affordable and well-constructed portfolio of short-term corporate bonds. Capturing sufficient upside without veering too far into risky territory makes it a compelling choice.

The fund tracks the Bloomberg US 1-5 Year Corporate Bond Index, which holds investment-grade corporate bonds with between 1 and 5 years remaining to maturity. Eligible bonds must have at least USD 300 million in outstanding face value to ensure there’s ample liquidity. The index filters out riskier types of bonds such as contingent capital securities, eurobonds, and bonds with equity features. It weights selected bonds by market value, an efficient approach in the liquid short-term corporate bond market.

Many short-term bond Morningstar Category peers cast wider nets that also sweep in government and securitized bonds. These securities often have higher credit ratings than corporate bonds, so the fund’s credit risk profile looks more aggressive in comparison. The fund invests up to 90% of its assets in A and BBB rated bonds, while category rivals load up on safer government bonds instead. This helped it better capture the market’s upside when investors reach for credit risk, such as during the market rebound in 2020. But it can also spell trouble for the fund when credit spreads widen, which disproportionately hurts lower-rated debt.

The fund takes on slightly more interest rate risk than the average peer. It overweights bonds with 3 to 5 years to maturity, while active peers often reach into ultrashort bonds. The fund’s effective duration of 2.7 years at the end of May 2025 was a few months longer than that of the category average. This makes it more vulnerable to interest-rate-driven downturns, though this has not significantly affected its since-inception outperformance.

The ETF share class beat the category average on both an absolute and risk-adjusted basis between its 2009 inception and May 2025. It captures most of the category average’s upside when credit spreads tighten or bond yields fall, making up for underperformance during stress periods. The fund’s low fee and broad portfolio should preserve its edge over the long term.

Read Morningstar’s full report on the Vanguard Short-Term Corporate Bond Index Fund.

Vanguard Short-Term Treasury Index Fund

• Index Fund: Yes
• : US Fund Short Government

• Prospectus Net Expense Ratio

  : 0.03%

• 12 Month Yield: 3.95%

Vanguard Short-Term Treasury provides a market-value-weighted portfolio of short-term Treasury bonds. Its efficient approach and razor-thin expense ratio make it a compelling option.

The fund tracks the Bloomberg 1-3 Year U.S. Treasury Index, which includes Treasury bonds with between one and three years remaining to maturity. The issuing activity of the US Treasury Department will dictate the portfolio’s composition. Market-value-weighting emphasizes the easiest-to-trade issues.

The Treasury market quickly reflects the market’s inflation and interest rate expectations. It is difficult for active managers to gain a durable edge and recoup their fees in this market without also taking greater risks than this portfolio. An ultralow-risk fund charging mere basis points like this one presents a high hurdle for any active manager in the category to beat.

Interest rate risk is the only risk the portfolio is exposed to, but even that is kept under wraps by focusing on the short end of the US Treasury yield curve. The fund will lose value when interest rates rise, but that effect will be muted with a lower average duration than most peers. Indeed, the fund fared more than 1 percentage point better than its typical short-government Morningstar Category peer in the inflationary environment of 2022.

Credit risk is virtually nonexistent since each Treasury is backed by the full faith and credit of the US government. This provides investors with a place of refuge when credit markets sour. With less risk comes less reward, though, and this fund may leave some yield on the table by not reaching for riskier bonds. While its long-term historical average yield lags the average category peer, a recent inversion at the short end of the curve means that this fund’s 12-month yield now eclipses the category norm, thanks to its shorter duration profile. Its 12-month yield stood at 4.16% compared with 4.07% for the category average at the end of June 2025.

Read Morningstar’s full report on the Vanguard Short-Term Treasury Index Fund.

How to Screen for More Top Short-Term Bond and Ultrashort Bond Funds and ETFs

Investors can use our Morningstar Investor Screener tool to find more promising bond funds and ETFs that favor the short end of the yield curve. To build your screen, start with the following filters:

Security Type: Select “Mutual Funds and ETFs” if you don’t prefer one vehicle over the other. If you do prefer one fund type over the other, select either “Mutual Funds” or “ETFs” from the drop-down box.

Morningstar Category: Check both “Short-Term Bond” and “Ultrashort Bond” from the drop-down box.

Medalist Rating (Overall): Click Gold, Silver, and Bronze to see a full list of all of the funds/ETFs that earn positive Medalist Ratings from Morningstar.

From here, you can refine the screen further if you’d like by using the “+ Add Filter” button. For instance, you can filter out funds/ETFs with yields that are too high or too low, only include investments with expense ratios at or below a particular level, or focus exclusively on index funds.

NOTE: Because the screen for this article was created with the lowest-cost share class for each fund, some may be listed with share classes that are not accessible to individual investors outside of retirement plans, or they may be aimed at institutional investors and require large minimum investments. The individual investor versions of those funds may carry higher fees, reducing returns to shareholders. Medalist Ratings may differ among the share classes of a fund.