After 11 interest-rate increases by the Federal Reserve since the start of 2022, Fed policy has shifted. The Federal Reserve has cut interest rates twice in 2024, with many market watchers expecting a cut in December, too. As a result, investors may think it’s time to go further out on the yield curve and extend their durations, possibly abandoning short-term bonds in favor of longer-term fare.
Morningstar’s chief research and investment officer, Dan Kemp, explains in his 2025 Investment Outlook: “Should our federal-funds rate forecast play out, investors would benefit by holding longer-term fixed-income bonds to maintain higher income levels.”
Is a Short-Term Bond Fund a Good Investment?
Morningstar Director of Personal Finance and Retirement Planning Christine Benz says whether or not to own a short-term bond fund should depend on your time horizon and when you need to tap into the money, not on what’s happening in the bond market. If you’re planning to spend these dollars in six to 10 years, intermediate-term core bond funds remain the place to be, she says. But if you’re saving for a shorter-term goal in the next three to five years, short-term bond funds remain better options.
Investors looking for good short-term bond funds should prioritize those with low expense ratios, or fees. Fees eat into returns, so it’s especially important to favor low-cost short-term bond funds, whose return opportunity is, by their very nature, modest.
Here is Morningstar’s list of the best short-term bond mutual funds and exchange-traded funds to invest in now.
7 Best Short-Term Bond Mutual Funds and ETFs for 2025
These funds land in one of the short-term taxable-bond Morningstar Categories and earn the top Morningstar Medalist Rating of Gold with 100% analyst coverage for one or more of their share classes as of December 2024.
- Baird Short-Term Bond BSBSX
- JP Morgan Limited Duration Bond ETF JPLD
- PGIM Short Duration Multi-Sector Bond Fund/ETF SDMZX PSDM
- Schwab Short-Term US Treasury ETF SCHO
- SPDR Portfolio Treasury ETF SPTS
- Vanguard Short-Term Corp Bond Index/ETF VSCSX VCSH
- Vanguard Short-Term Treasury Index/ETF VSBSX VGSH
Here’s a little bit about each of these ETFs and mutual funds. All data is as of Dec. 9, 2024.
Baird Short-Term Bond
- Morningstar Category: Short-Term Bond
- Expense Ratio: 0.55%
- Effective Duration: 1.85 years
This top-rated short-term bond fund is actively managed by an experienced team that invests in high-quality corporate bonds and securitized credit, as well as government bonds. The team keeps the fund’s duration (a measure of interest-rate sensitivity) in line with the Bloomberg U.S. Government/Credit 1–3 Year Index’s, and it adds value through adept security selection and sector allocation among corporate, securitized, and government bonds. The fund takes on more credit risk than its index, but it remains a good choice for investors in search of a conservative short-term bond fund, notes Morningstar Director Alec Lucas.
JP Morgan Limited Duration Bond ETF
- Morningstar Category: Short-Term Bond
- Expense Ratio: 0.24%
- Effective Duration: N/A
JP Morgan converted this one-time mutual fund into an exchange-traded fund in mid-2023. The management team emphasizes short-term mortgage and asset-backed securities. Stringent security selection and stable duration are hallmarks of the strategy at this highly rated fund, which is why this ETF has been less volatile than some of its peers, explains Morningstar Senior Analyst Paul Olmsted. The managers also de-emphasize lower-yielding US Treasuries relative to their loose index, the Bloomberg 1-3 Year US Government/Credit Index.
PGIM Short Duration Multi-Sector Bond Fund/ETF
- Morningstar Category: Short-Term Bond
- Expense Ratio: 0.40% (mutual fund and ETF)
- Effective Duration: 1.86 years
Next on our list of the best short-term bond funds, PGIM Short Duration Multi-Sector Bond is an attractive option for investors willing to take on a bit more risk, says Morningstar Director Eric Jacobson. The managers of this top-rated fund attempt to outperform their benchmark, the Bloomberg US Government/Credit 1-3 Year Index, by 150 basis points annually with a flexible mandate that at times delves into non-US developed-and emerging-markets debt. The portfolio is often closer to the long end of its short-term bond Morningstar Category.
Schwab Short-Term US Treasury ETF
- Morningstar Category: Short-Term Government
- Expense Ratio: 0.03%
- Effective Duration: 1.88 years
Schwab Short-Term US Treasury ETF is the first name on our list of the best short-term bond funds from the short-term government-bond category. This passive bond ETF tracks the Bloomberg US Treasury 1-3 Year Index. It’s a tough fund to beat in its category, given the efficiency of the very liquid US Treasury bond market and the ETF’s razor-thin expenses, explains Morningstar Analyst Zachary Evens. Credit risk is nonexistent here, given its focus; interest-rate risk is damped with its focus on the short end of the yield curve.
SPDR Portfolio Treasury ETF
- Morningstar Category: Short-Term Government
- Expense Ratio: 0.03%
- Effective Duration: 1.85 years
The second low-cost passive ETF investing in short-term Treasuries on our list, SPDR Portfolio Treasury ETF is managed by State Street. As with Schwab’s similar offering, this top-rated ETF maintains virtually no credit risk since it holds only US Treasuries, and it poses limited interest-rate risk, as it favors the short end of the yield curve.
Vanguard Short-Term Corporate Bond
- Morningstar Category: Short-Term Bond
- Expense Ratio: 0.07% (mutual fund), 0.04% (ETF)
- Effective Duration: 2.60 years
This index fund—available as both a mutual fund and as an ETF—tracks the Bloomberg US 1–5 Year Corporate Bond Index, which features US investment-grade corporate bonds with between one and five years in remaining maturity. Like some other funds featured here, this fund takes on a fair amount of credit risk. That being said, the fund provides accurate access to the short-term investment-grade bond market at a low cost and has been a competitive long-term performer, observes Morningstar Analyst Lan Anh Tran.
Vanguard Short-Term Treasury Index/ETF
- Morningstar Category: Short Government
- Expense Ratio: 0.07% (mutual fund), 0.04% (ETF)
- Effective Duration: 1.86 years
Rounding out our list of the best short-term bond funds to buy now, Vanguard Short-Term Treasury invests exclusively in short-term US Treasuries. An index fund that’s available as both a mutual fund and an ETF, it tracks the Bloomberg US Treasury 1–3 Year Index, which, as its name suggests, focuses on US Treasuries with one to three years until maturity. Given its very high-quality focus, the fund takes on minimal credit risk. Interest-rate risk holds more influence over performance, but given the fund’s emphasis on the short end of the yield curve, even that risk is muted, reminds Morningstar’s Evens. Ultralow expenses only add to the appeal here.
How to Find More of the Best Bond ETFs and Mutual Funds for the Long Term
Given their high Morningstar Medalist Ratings, we expect the top-rated mutual funds and ETFs on our list to outperform over a full market cycle.
That being said, investors may want to expand their search for bond funds beyond this list, using parameters that matter to them. Here are two additional ways to find dividend ETFs and mutual funds to investigate further. Some investors may prefer a list of highly rated funds that invest in bonds around the globe, not just in US names.
- Morningstar.com provides lists of bond funds, as well as a collection of our bond-related articles, at Morningstar.com/bonds.
- Under Morningstar’s Best Investments, you will find lists of our Morningstar Medalist bond funds. Click here, and scroll down to “Medalist Bond Funds.”