Morningstar on Funds for Rate Cuts
Morningstar Says, "Consider These Funds to Manage Your Cash Amid Fed Rate Cuts." The article explains, "[T]he market is still anticipating at least 50 basis points of cuts over the coming 12 months, according to the CME FedWatch Tool. This key rate is a primary monetary policy lever and a benchmark for other short-term interest rates, affecting yields on money market funds and other short-term strategies.... But falling short-term yields shouldn't lead you to chuck your short-term funds. While the yield of the three-month Treasury bill remained slightly above that of the three-year Treasury note in December 2025, history has shown that the yield curve will likely steepen, causing yields on the very front of the curve to fall more than longer yield. Against this backdrop, investors should be thoughtful about where they park their cash and short-term investments. Effectively managing short-term liquidity by adding incremental yield where possible can add up over time. The average retail taxable government money market fund yielded less than 4% at the end of November 2025 and will likely trend lower as the Fed considers more rate cuts. With a positively sloped and steeper yield curve, investors should consider opportunities to add more value by extending into active ultrashort and short-term fixed-income funds, which can offer higher yields but come with moderate interest rate risk. Consider these general holding period guidelines for managing liquidity: a money market fund for immediate cash needs, an ultrashort fund for a period of six months to 1.5 years, and a short-term fund for 1.5 to 3.0 years. Here are some of the top investment choices to consider." The piece continues, "Pimco's veteran short-term and liquidity specialists manage Pimco Short-Term PSHAX, a top-tier offering in the ultrashort bond Morningstar Category.... The fund relies on a flexible mandate and a deep toolkit to navigate the best opportunities on the front end of the yield curve. Its emphasis on corporate and securitized sectors, which offer incremental yield over risk-free Treasuries, helps generate an attractive yield. As of Nov. 30, 2025, the fund's SEC yield was around 4.0%. It also comes in a more cost-effective exchange-traded fund wrapper, although it is slightly tamer than its flagship offering; Gold-rated Pimco Enhanced Short Maturity Active ETF MINT touts a 4.07% SEC yield." It adds, "Vanguard Short-Term Investment-Grade VFSUX takes a slightly different approach from other more diversified funds. Its duration is longer than ultrashort offerings and therefore can be more susceptible to changes in interest rates, but less than that of intermediate funds. This fund's 4.20% SEC yield mostly comes from its large allocations to industrial and financial corporate bonds as well as smaller stakes in Treasuries and asset-backed debt."
