Low Duration Strategies: A Viable Alternative to Money Market Funds

by Kerry Raponot of Payden & Rygel, 11/10/25

As the Federal Reserve continues to cut rates, the yields on money market funds are on a decline. For investors who prioritize safety, liquidity, and enhanced income, low duration bond strategies present a compelling solution. These strategies offer a balanced approach to navigating the current financial landscape.

The Current Landscape

Money market fund balances have surged to $7.7 trillion, marking an increase of $1 trillion over the past year and $3 trillion since the pandemic began. Despite speculations about a "wall of cash" moving into equities, historical data suggests that cash tends to remain in money market funds even after the Federal Reserve starts cutting rates. This creates opportunities for investors willing to move slightly further out the curve as yields decline.

Why Consider Low Duration Strategies?

Low duration bond strategies offer several advantages over money market funds and bank deposits:

  1. Enhanced Yield Potential: These strategies invest in bonds maturing within five years, allowing investors to lock in longer-term yields and benefit from price appreciation as rates drop.
  2. Diversification: By investing across Treasuries, corporates, and structured credit, low duration strategies generate higher total returns while maintaining liquidity.

The Bottom Line

As the Federal Reserve lowers rates, low duration strategies provide a timely and balanced approach. They offer yield, stability, and flexibility for investors ready to move beyond cash.

Trends in the Low Duration Space

With $7.7 trillion currently sitting in money market funds, there is speculation about a significant shift into equities. However, historical trends indicate that cash remains in money market funds until well after the Federal Reserve starts cutting rates. Investors who can move their cash slightly further out the curve can benefit from enhanced return potential as yields decline.