This part of the bond market offers compelling yields with minimal risk

Ultrashort bond funds invest in debt securities with very short maturities, typically ranging from a few months to about a year. Because these bonds mature quickly, their prices are far less sensitive to interest-rate movements than those of longer-dated bonds. That shorter duration is the key feature: it allows investors to collect yields that are often higher than those available on money market funds or short-term deposit accounts, while keeping price fluctuations relatively contained.

The strategy's appeal tends to grow when the yield curve is flat or inverted, as it has been at various points in recent years. In that environment, investors may not be paid much extra for locking money up for many years, making the front end of the curve comparatively attractive. Credit quality also matters, since ultrashort funds can hold corporate as well as government debt.

What to watch: the funds' expense ratios, average duration, and credit composition, all of which shape both the yield received and the risk taken. Rate cuts or hikes can shift the calculus quickly, so the yield advantage is not static.