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Short-Term Bond ETF Options as SEC Mulls Money Market Reform


Ultra-short-duration bond exchange traded funds have garnered attention as an alternative to money market funds with the SEC set to implement structure changes in coming months. However, the SEC could scale down rules to exempt some investors.

The Securities and Exchange Commission is expected to broaden exemptions for mom-and-pop retail investors from requirements that certain money funds float their value, reports Andrew Ackerman for the Wall Street Journal. [Money Market Reform Debate and Short-Duration Bond ETFs]

Proponents have argued that floating money fund share prices so that they may fluctuate beyond the signature $1 share price would allow investors to be accustomed to shifting prices and reduce panic in case the shares do dip below $1.

Money market funds hold short-term debt instruments and are designed as safe investments. However, the assets came under heavy selling pressure following the collapse of Lehman Brothers. Consequently, the SEC is under pressure to enact broad structural rules to discourage investors from quickly dumping shares during times of stress.

While mom-and-pop investors may be exempt from floating money funds, the SEC can still draw up provisions requiring investors to pay a withdrawal fee during times of stress or even face a hold on money. On Monday, the agency released a series of memos that showed empirical evidence for imposing redemption fees during volatile markets, which suggests the SEC is considering a combination of both floating share prices with curtailing redemptions during certain times.

Any changes in the money markets could support the growing fixed-income ETF market, notably ultra-short-duration bond funds as a cash alternative. For instance, the PIMCO Enhanced Short Maturity ETF (MINT) has a 0.57% 30-day SEC yield and a  0.69 year effective duration. The Guggenheim Enhanced Short Duration Bond (GSY) has an average 0.33 year duration and a 0.98% 30-day SEC yield. The iShares Short Treasury Bond ETF (SH.V) has an effective duration 0.36 year and a 0.07% 30-day SEC yield. The SPDR Barclays 1-3 Month T-Bill (BIL) has an effective duration 0.09 year and a -0.08% 30-day SEC yield.

For more information on bonds, visit our bond ETFs category.

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Mr. Lydon serves as an independent trustee of certain mutual funds and ETFs that are managed by Guggenheim Investments; however, any opinions or forecasts expressed herein are solely those of Mr. Lydon and not those of Guggenheim Funds, Guggenheim Investments, Guggenheim Specialized Products, LLC or any of their affiliates. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.