Payden & Rygel: Low duration strategies

Payden & Rygel: Low duration strategies

15 oktober 2025

Obligaties

As the Federal Reserve begins cutting rates, yields on money market funds are declining. For investors seeking safety, liquidity, and enhanced income, low duration bond strategies present a compelling solution, according to Kerry Rapanot, CFA, Director and Low Duration Portfolio Strategist at Payden & Rygel.

'As the Fed lowers rates, low duration strategies offer a timely, balanced approach—providing yield, stability, and flexibility for investors ready to move beyond cash,' said Rapanot.

Key Takeaways

  • Money market fund balances have reached $7.7 trillion, up $1 trillion over the past year and $3 trillion since the pandemic.
  • Despite talk of a “wall of cash” moving into equities, history shows cash remains sticky even after the Fed begins cutting rates.
  • As rates fall, yields on money market funds decline—creating opportunities further out the curve.

Why low duration strategies

Low duration portfolios offer enhanced yield potential compared to money market funds or bank deposits. By investing in bonds maturing within five years, investors can lock in longer-term yields and benefit from price appreciation as rates drop. These strategies provide diversification across Treasuries, corporates, and structured credit generating higher total returns while maintaining liquidity.

Comparing low duration and money market funds

While yields on money market funds are falling, low duration bond strategies offer the potential to earn more over time. Although current portfolio yields may be lower due to the inverted yield curve, this dynamic will shift as the curve disinverts. Low duration portfolios also benefit from active yield curve management and diversified exposure across the fixed income universe.

Liquidity in low duration portfolios remains comparable to money market funds, as these strategies invest in high-quality Treasuries and top-tier credit. Bonds typically mature within five years, providing both liquidity and the opportunity to benefit from price appreciation as rates decline.

Managing Risks

Low duration strategies carry modest price volatility due to longer maturities and credit exposure, yet the short-term nature of the holdings helps limit risk. As bonds near maturity, prices tend to pull to par, helping stabilize returns. Active management ensures portfolios remain liquid while participating in total return opportunities.

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