In 2022, the Fed embarked on a multiyear fight to curtail soaring inflation while avoiding plummeting the economy into a recession. Trade wars and tariffs as well as political uncertainty now threaten to upend the soft-landing narrative. In such a complex and uncertain environment, short duration bonds provide a number of benefits for investors.
February headline and core inflation came in lighter than expected, as inflation continued its slow retreat. However, this continued progress was overshadowed by an onslaught of tariff news that shook markets and investor confidence.
Tariffs introduce a new variable to the inflation equation, altering the potential outcome and inflation trend. The specter of COVID-19 global supply chain impacts still looms large over the Fed and markets. Tariffs could present new challenges as global dynamics and decades of global trade lines abruptly shift. “It is dangerous to assume away supply chain issues,” cautioned Chicago Fed President Austan Goolsbee, reported WSJ.
Concerns around rising recession risks alongside the inflationary pressures of tariffs and immigration policies create heightened uncertainty this year for U.S. investors. March’s CNBC Fed Survey revealed that respondents anticipate two or more rate cuts this year. Respondents included analysts, fund managers, and strategists.
“A global trade war, haphazard DOGE cuts to government jobs and funding, aggressive immigrant deportations, and dysfunction in DC threaten to push what was an exceptionally performing economy into recession,” Mark Zandi, chief economist at Moody’s Analytics, told CNBC.
Should the Fed resume rate cuts this year, yields on money market and other cash alternatives would decline. Short duration may provide an attractive risk and return profile and alternative for those investors looking to put their cash to work. With low interest rate risk and attractive yields compared to longer duration peers, they’re worth consideration this year.
“Although off from recent highs, short-duration Treasury yields remain elevated versus pre-2022 levels,” explained Neuberger Berman in a recent article. “At the same time, 10-year Treasuries provide little yield advantage over two-year Treasuries despite the latter’s lower interest rate risk profile and more modest volatility levels.”
Active Management in Short Duration
The actively managed Neuberger Berman Short Duration Income ETF (NBSD ) seeks to generate reliable income while providing an investment-grade, short duration profile for portfolios. Short-term bonds often prove appealing for their reliable income potential when interest rate, inflation, or recession risks spike.
The fund invests across a variety of sectors and bond types, including fixed- and floating-rate investment-grade bonds, both foreign and domestic. These can include asset- and mortgage-backed securities, collateralized debt obligations (including CLOs), and credit risk transfer securities.
See also: ETF of the Week: Neuberger Berman’s ETF NBSD
The management team considers both qualitative and quantitative factors when selecting securities. They search for underpriced bonds, both on a sector level as well as within peer groups. While 80% of the fund comprises investment-grade bonds, up to 20% may be below investment-grade. When investing in these junk bonds, the fund managers seek issuers in relatively strong financial health and whose credit scores may increase.
The strategy also works to reduce credit risk through its diversified exposures. NBSD currently offers a 30-day SEC yield of 5.39%, as of February 28, 2024. The fund also offers a distribution rate of 4.81% over the same period. Distribution rate annualizes the most recent distribution and then divides by the most recent NAV. The weighted average duration of the fund was 1.88 years, as of February 28, 2025.
NBSD carries an expense ratio of 0.35%.
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