Late last week, we hosted our latest Crane's Bond Fund Symposium in Boston. The keynote talk, "Ultra‐Short Bond Funds: Spring Break," featured J.P. Morgan Securities' Teresa Ho and PIMCO's Jerome Schneider. Schneider comments, "First of all, thanks for being here. Once again, it's obviously a great forum to see friends. And it's important, not just because of where we are today, and we can talk about the factors of where the economy is going and waking up every moment to see where rates are going, things like that. But I think importantly, from a logical point of view, what we do here is probably emphasized as calm amongst a storm of uncertainty ... for the broader landscape. So, my [role at] PIMCO is running short-term low duration strategies in addition to some of our portable alpha strategies.... From that vantage point, I think about the best way to optimize cash and ... shorter duration type of fixed income allocations." (Note: Thanks again to those who supported Bond Fund Symposium! Attendees and Crane Data subscribers may access the conference binder, Powerpoints and recordings via our "Bond Fund Symposium 2026 Download Center.")
Ho explains, "So maybe just to set the scene here, ... 2025 was a solid year for ultra-short bond funds.... From a performance perspective, many of the ultra-short bond fund strategies cleared 5%. Some even returned closer to 6 1/2% ... clearly comfortably above money funds, even if they lagged intermediate and long-duration funds. The performance of ultra shorts was clearly driven by the rally in the front end.... We saw two [year] is going to end the year at around 3.40, 3.50, which is 80 basis point lower than where we started the year."
She continues, "The decline supported the carry, and the market roll down, for the low duration indices. So not surprisingly, ultra shorts outperformed, and clearly on the back of that performance, we saw more inflows into ultra short bond funds. That has continued into 2026. Based on our estimates, and this is based on EPFR data, AUMs of ultra-short and short-term bond funds increased by $116 billion last year. So far in 2026, it has increased by $28 billion. With that being said, money funds took in even more."
Ho comments, "Which is really notable for a year that wasn't even marked by a crisis. Um, I think the only other time that we saw more inflows was in 2020, as well as in 2023, when we had the SVB fallout. And you know, for all the hype that there was this giant pile of cash sitting on the sidelines ready to go into the risky markets, when the Fed cut rates that just did not happen at all. It did not happen in 2023, did not happen in 2024, did not happen in 2025. And even as we move into 2026, it is still not happening."
She adds, "So, we do think that in 2026 money fund balances will continue to grow. It's currently about $8.1 trillion now. So I think there's a greater chance that we'll head towards $9 trillion than [there is] we'll head towards $7 trillion.... I think ... there's a couple of things that are driving it. One, I think it's just organic interest that the money funds are collecting, right. Even at 3.5% on $8 trillion ... you're getting, you know, $250 to $300 billion of just interest and coupon that you're collecting. The other thing is, relative to bank deposits, it's still a very attractive cash investment vehicle."
Schneider then states, "By moving to ultra-short strategies, I'll [likely] perform by 75 basis points or more over the course of the remainder of the cycle. Now with neutral rates, not heading toward 2.75%, but maybe 3.25% or maybe perhaps higher, the reality is that that cash is in play. But what we're also seeing is a subsequent recalibration of the opportunities that for people who are in those cash allocations to maintain sort of that more active diversified approach into ultra short landscape."
He tells us, "The back-up in rates has actually afforded us a wider spread or a wider opportunity to sort of be more tactical, thought-provoking ... engaging clients' cash at this point in time.... [P]eople [are] going to be a little bit more aggressive in terms of how they think about those opportunities, because they're going to see it in terms of the price performance, and upside potential of those ETFs in that ultra-short landscape, more than a traditional stable money market fund landscape."
When asked about flows, Schneider replies, "First of all, I'd point you to, Teresa did a great piece maybe last week or two weeks ago on corporate cash growing.... I think it's pretty profound as a lot of the data you see, especially in money funds, is really driven by institutional money at this point. Although in recent days have [seen] more defensive postures by retail, it's really institutional money. It's being recycled from all the ABS deals, the quasi-AI deals, things like that, that are going to be probably spent down over the next one to four years. [And] there's always seasonality with regard to tax expenditures."
He adds, "We are seeing a healthy diversified approach to growth of our assets that's inorganic. A lot of folks who have been sort of sitting on the sidelines for the past few years because rates were high and banks were paying a lot of money have been moving out because banks are no longer paying attractive depository rates for funding. And that goes for everybody. It goes with some of the tech companies that Teresa has highlighted, some family offices. Retail has been driving primarily ETF complexes and sort of more systematic model driven. But it's been healthy."
Schneider says, "I would say that growth has been somewhere between 15 and high-teens percent over the course of the year, emphasized by a lot of growth in that ETF landscape. And I would just say that it's a balanced approach. People are afraid to add to risk.... So, our messaging obviously evolves with a lot of different audiences right now, from very technical to very top level. But it's all sort of going in the same direction in terms of growth and appetite."
He says about putting money to work, "I think ultimately, it's really trying to manage value with liquidity horizons.... I think from that perspective, having conversations with our clients in terms of what the maturity expectations are or liquidity needs is first and foremost of how that playbook is put to work. So, we literally have that playbook for sort of multiple tiers of clients who have cash needs daily versus cash needs, you know, semi-annually or longer. And it is very different."
Finally, Ho comments, "When we think about all the liquidity investors in the front-end, and so that ranges from the GSEs to the money funds, onshore and offshore, to the LGIPs, to the mutual funds ... I think really the point to emphasize here is that there is a lot of liquidity in the front-end. And that cash, as we have seen over the past couple years, is ... not going away.... So we do think that cash is here to stay. And I think that is ... regardless of kind of what the Fed does for its next move, whether it's a cut or a hike, ... I don't think that cash is going anywhere. So that's ... good news for someone sitting in the front-end."
