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Investors anticipating a stock market correction have moved into ultra-short bond funds, the safety trade filling a gap left by two failing alternatives.
Long-term bonds, once the textbook flight-to-safety instrument, are broken as a hedge. That leaves a narrow window, and money has found it. The case for ultra-short bond funds is that they sidestep both problems at once.
They offer more yield than sitting in cash and carry far less duration risk than the long end of the curve.
Investors who want to wait out a potential correction without forfeiting all income have little else to reach for, and flows into ultra-short funds reflect exactly that calculation.
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