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Low Duration Strategies Offer an Attractive Alternative to Money Market Funds

A Conversation with Payden & Rygel’s Kerry Rapanot, CFA

As the Federal Reserve cuts rates, yields on money market funds are declining. For investors seeking safety, liquidity, and enhanced income, low duration bond strategies are a compelling solution, according to Payden & Rygel’s Kerry Rapanot.

Key Takeaways:

  • Money market fund balances have reached $7.7 trillion, up $1 trillion over the past year and $3 trillion since the pandemic.
  • Despite talk of a “wall of cash” moving into equities, history shows cash remains sticky even after the Fed begins cutting rates.
  • As rates fall, yields on money market funds decline, creating opportunities further out the curve.

Why Low Duration Strategies

  • Offer enhanced yield potential vs. money market funds or bank deposits.
  • Invest in bonds maturing within five years, allowing investors to lock in longerterm yields and benefit from price appreciation as rates drop.
  • Provide diversification across Treasuries, corporates, and structured credit— generating higher total returns while maintaining liquidity.

The Bottom Line

As the Fed lowers rates, low duration strategies offer a timely, balanced approach—providing yield, stability, and flexibility for investors ready to move beyond cash.

What trends do you foresee in the low duration space as interest rates continue to trend lower?

Currently, $7.7 trillion is sitting in money market funds – an increase of $1 trillion since last year and $3 trillion since the start of the pandemic. The increased balance in money market funds has sparked speculation of a “wall of cash” ready to deploy into equities. However, we historically see that cash does not move out of money market funds until well after the Federal Reserve starts cutting rates, so we believe this cash balance is on the stickier side. Investors able to move their cash slightly further out the curve can benefit from enhanced return potential as yields decline.

How does low duration compare with money market funds in terms of yield and liquidity in the current environment?

As the Federal Reserve cuts rates, yields on money market funds are falling. Low duration bond strategies offer investors the potential to earn more than money market funds or bank deposits. Given the current inverted yield curve, low duration portfolios may have a lower portfolio yield than money market funds. However, this dynamic will change over time, as the yield curve disinverts. Despite lower current yields, the return potential of a low duration strategy is greater than a money market fund, since low duration diversifies investments across the fixed income universe and benefits from yield curve management. 

Liquidity in our low duration strategy is similar to that of a money market fund as a result of the strategy holding treasuries and high-quality, top of the capital stack credit. Low duration typically invests in bonds with maturities up to five years, allowing investors to lock in longer-term yields and benefit from price appreciation as interest rates fall.

Additionally, they diversify investments across the fixed income universe, from treasuries to corporate and structured bond credit, generating greater returns while maintaining liquidity. 

What risks should investors be mindful of when moving from money market funds into low duration strategies during a period of falling rates?

While low duration strategies offer higher return potential than money market funds, they come with greater price volatility due to owning longer maturities and the inclusion of credit. However, the investments remain short-term enough to limit risk, especially as bonds quickly approach maturity and their prices pull to par, helping to stabilize returns. By its nature, a low duration portfolio should be liquid, but not every individual holding needs to be available to function as liquidity. Through active management, portfolios can maintain liquidity and participate in total return opportunities. 

Kerry G. Rapanot, CFA

Kerry Gawne Rapanot, Director, Low Duration Portfolio Strategist

24 Years at the Firm, 30 Years in the Industry

Kerry Gawne Rapanot is a director and a member of the Low Duration Strategy leadership team at Payden & Rygel. She is responsible for the development and implementation of investment strategies within the firm’s liquidity-oriented and ultra short portfolios. In this capacity she is responsible for oversight of idea generation, strategy implementation and risk management.

ABOUT PAYDEN & RYGEL

Payden & Rygel is one of the largest privately-owned global investment advisers, managing approximately $165.7 billion in assets. Founded in 1983, the firm specializes in the active management of fixed income and equity portfolios, serving a diverse range of institutional worldwide. With clients that include central banks, pension funds, foundations, and corporations, Payden & Rygel offers a comprehensive suite of investment strategies through separately managed accounts, US mutual funds, and Irish-domiciled funds (subject to investor eligibility). Headquartered in Los Angeles, the firm also maintains offices in Boston, London and Milan. To learn more, visit www.payden.com.

© 2025 Payden & Rygel All rights Reserved. This material reflects the firm’s current opinion and is subject to change without notice. Sources for the material contained herein are deemed reliable but cannot be guaranteed. This material has been approved by Payden & Rygel Global Limited which is authorised and regulated by the Financial Conduct Authority and by Payden Global SIM S.p.A. which is authorised and regulated by CONSOB.