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Wall Street has endured a sharp market downturn amid ongoing tariff disputes, rising inflation, and heightening recession fears. Volatility is likely to persist in the near-term as uncertainty lingers over President Trump’s trade policies and a slowing economy.

Such a scenario has raised the demand for cash-like ETFs (or ultra short-term bonds ETFs). These ETFs have attracted more than $16 billion this year. iShares 0-3 Month Treasury Bond ETF (SGOV - Free Report) has been leading with more than $7 billion in inflows, including a record $1.4 billion last week. SPDR Bloomberg 1-3 Month T-BILL ETF (BIL - Free Report) gathered $3.2 billion this year, with half of that amount coming in last week. JPMorgan Ultra-Short Income ETF (JPST - Free Report) saw inflows of $3 billion this year.

Why Investors are Piling These ETFs?

These funds invest in ultra-short-term bonds and help investors keep aside money for a couple of weeks to a few months with almost no risk. In times of market downturns, these can act as a hedge, protecting the portfolio from significant losses. Unlike equities or longer-duration bonds, the value of cash-like ETFs is less likely to be affected by market turbulence, making them a reliable option during uncertain times.

Instead of keeping excess cash idly in a low-yield bank account, investing in a cash-like ETF can enhance returns while maintaining liquidity.

Traders are betting that the U.S. economy has lost steam and is on the verge of sliding toward a recession. The surveys and sentiment indicators in recent weeks have been soft, underscoring the ongoing weakness in the economy. The tariffs will raise prices for U.S. consumers and dampen economic growth.

PIMCO CEO Mohamed El-Erian told Yahoo Finance that he now sees a 25% to 30% chance of the U.S. economy entering into recession this year, up from a 10% chance seen before the Trump tariff bonanza began. Betting markets are pricing in an increasing chance of the U.S. economy entering a recession. Polymarket places the odds of a U.S. recession being officially called by year-end at roughly 40% as of Monday, up from a 23% chance as of Feb. 27.

Further, many Wall Street analysts have raised concerns about stagflation, where growth stagnates, inflation remains high, and unemployment rises. JPMorgan (JPM), Goldman Sachs (GS), and Morgan Stanley (MS) have reduced their respective economic growth targets, citing the anticipated effects of restrictive trade and immigration policies. JPMorgan's model recently pegged the probability of an economic downturn at 31%, while Goldman flagged rising recession risks.

Moreover, the rate cuts bet resurfaced as early as June as the yields on two-year Treasury bonds dropped sharply. During such times of turmoil, investors tend to turn to less volatile and lower-risk assets like fast-maturing bonds.

ETFs in Focus

Provided below is a brief overview of the previously-mentioned ETFs.

iShares 0-3 Month Treasury Bond ETF (SGOV - Free Report)

The iShares 0-3 Month Treasury Bond ETF offers exposure to U.S. Treasury bonds with remaining maturities less than or equal to three months. It follows the ICE 0-3 Month US Treasury Securities Index with an average maturity of 0.09 years and an effective duration of 0.08 years. 

The ETF has AUM of $36.8 billion, and it trades in an average daily volume of 8 million shares. The ETF charges 9 bps in annual fees, and it has a Zacks ETF Rank #3 (Hold) rating.

SPDR Bloomberg 1-3 Month T-Bill ETF (BIL - Free Report)

The SPDR Bloomberg 1-3 Month T-Bill ETF seeks to provide exposure to zero-coupon U.S. Treasury securities that have a remaining maturity of one to three months. It follows the Bloomberg 1-3 Month U.S. Treasury Bill Index, holding 24 securities in its basket. Average maturity and adjusted duration are 0.12 and 0.12 years, respectively. 

The ETF has AUM of $39.4 billion and an average daily volume of 8 million shares. It charges 14 bps in annual fees, and it has a Zacks ETF Rank #3 (Hold) rating with a Medium risk outlook.

JPMorgan Ultra-Short Income ETF (JPST - Free Report)

The JPMorgan Ultra-Short Income ETF invests primarily in a diversified portfolio of short-term, investment-grade fixed- and floating-rate corporate and structured debt while actively managing credit and duration exposure. It holds 883 bonds in its basket with an average duration of 0.86 years. 

The ETF has AUM of $31.2 billion in its asset base while trading in a good volume of around 6 million shares a day. It charges 18 bps in annual fees.

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