T. Rowe Price published an insight entitled, "Seeking to Optimize Cash Allocations With Low Duration Bonds." The piece, written by Cheryl Mickel, Thomas Heidenberger, and Alex Obaza, says, "Low duration bond funds, such as the T. Rowe Price Ultra Short Term Bond Fund, have provided a sustained yield advantage over time compared with a traditional money market fund. These low duration strategies can take on marginally more credit and interest rate exposure and risk, which creates the potential for compelling returns versus traditional cash management vehicles. This naturally leaves investors asking themselves about the opportunity cost of their cash holdings." They explain, "In order to capitalize on higher potential returns, an investor can consider a strategic or long-​term approach to cash investing. This requires an investor to separate immediate liquidity needs from cash that is not needed for at least three to six months. Investors can consider an investment product for the latter portion, such as the T. Rowe Price Ultra Short Term Bond Fund, where they can potentially benefit from higher yield and total return compared with traditional cash alternatives." T. Rowe Price writes, "While bank accounts are insured (​up to USD 250,​000) by the Federal Deposit Insurance Corporation (​FDIC) against the risk of bank failure, and their principal values do not fluctuate as interest rates rise or fall, the advantage of higher yields on money market funds has driven many bank customers to move their assets from deposit accounts to money market funds, contributing to the recent stress on regional banks. Retail money market funds have been a destination for assets from bank deposits due to money market funds' increased use of the Federal Reserve'​s reverse repo program, which provides a significant yield advantage over bank deposit rates because of the program'​s close tie to the federal funds rate.... However, recent money market reform regulations (​SEC rule 2a-​7) limit retail money market funds to a 60-​day weighted average maturity (​WAM) to ensure the highest level of liquidity consistent with a lower risk profile for investors. As we near the peak of the current U.​S. interest rate cycle, many of these money market funds will lengthen WAMs to hold higher yields for as long as possible -- but regulatory requirements still cap their WAMs and yields. While money market mutual funds do not guarantee an investor'​s deposit like an FDIC-​insured bank account, U.​S. Treasury and government money market mutual funds are required to invest at least 99.​5% of their assets in fixed income securities backed by the full faith and credit of the U.​S. government. Retail prime money market mutual funds can invest in a broader range of short-​term instruments, including commercial paper issued by corporations." They add, "Compared with a traditional money market fund, the Ultra Short-​Term Bond Fund can cast a wider net across the universe of low duration investments, and it has the flexibility to invest in instruments that mature in as long as three years. This provides the fund with more ways to potentially source more yield from multi sector credit allocation, duration, or a combination of both while taking on additional risk. This should help keep its yield competitive with money market fund yields even as we enter an expected higher for longer interest rate environment."

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