The drop in BCE rates since mid-2010 has brought the monetary’s rate to the same level as inflation, while other bond market segments retain significantly higher rate of return.
Since the beginning of the year, the ECB has lowered its guiding rates on four times, bringing its deposit rate to 2%, against 3% at the end of 2024. The StR € rate, reference of the monetary market, has returned to 1.9% (June 30) and could continue to fall back: the market anticipates a last drop in the BCE by the end of the year.
Despite the interest of monetary solutions over the period 2022-2024, investors looking for low-risk investments now have every interest in turning to other options. The short -term bond, in particular, currently offers higher term yields to the monetary while retaining a limited level of risk.
Context: the monetary no longer compensates for inflation
From 2022, monetary investments were particularly sought after to take advantage of the increase in rates, while “classic” bond segments suffered from this phenomenon. From the end of 2023, monetary investments then benefited from another asset: the € STR rate linked to the BCE deposit rate-was then higher than the level of inflation in the euro zone, a historically rare phenomenon (see below).
The drop in BCE guiding rates since mid-2010, however, brought the monetary’s rate to the same level as inflation now, while other bond market segments retain significantly higher rate of return.
Investors are aware of this paradigm shift, and an inversion of collection trends is gradually observed. After two particularly dynamic years in 2023 and 2024, the monetary is now less sought after. Conversely, after their dissatisfied 2022 and 2023, the “short -term” oriented bond strategies benefit from an acceleration of incoming flows. At the current rate, the “Short Duration” strategies will have captured almost twice as much investment flows in 2025 than in 2024, extrapolating the data of Morningstar arrested at the end of the first half.
The interest of short -term grade investment
The Corporate Segment Investment short-term grade (1-3 years) presents, as of June 30, a term return of 2.7% on average, again offering a bonus against the monetary market (1.9%), as indicated by the graph below.
Over long period, this rate differential allows you to generate significant outperformance in the face of risk -free rate. From the 1stis January 2007, the Bofa Euro Short Duration Investment Grade index increased by +51%, against +18% for the money market.
This investment strategy can in particular meet the needs of investors looking for low-risk investments: it makes it possible to expose themselves to excellent quality issuers, its volatility remains low and its sensitivity to rate variations is moderate due to the short maturity of underlying securities. It should be noted that the withdrawal of the index observed in 2022 thus remained twice as low as that of the investment segment grade “all maturity”.
The interest of the short term high yield
The rate differential is even more notable on High Yield, whose short-term segment (1-3 years) offered an average term return of 5.2% to June 30, 2025.
Over the past 15 years, the High Yield “Short Duration” segment has regularly taken advantage of this surplus yield to generate a significantly higher performance than that of the monetary (see below).
The volatility of this strategy is of course higher than that of the monetary market or the investment grade segment, but remains more moderate than that of the high yield market “all maturity combined”. It should also be noted that during the last 15 years, the “Drawdowns”, corresponding to periods of stress on the markets (2008, 2011, 2020 and 2022), have almost always been filled in the space of only a year.
Active management on the High Yield “Short Duration” segment can also generate appreciable outperformance in the face of the market average. “Bond Picking” resulting from a rigorous analysis makes it possible to considerably diminish the risk of defect inherent in the High Yield segment, while capturing the yield of the asset class.
Conclusion
The “Short Duration” approach on the Investment Grade and High Yield segments therefore offers higher term yields than those of the monetary, while maintaining a relatively contained level of risk. These strategies allow not only to generate significant output over the long term, but also to benefit from moderate volatility and a limited sensitivity to rate variations, effectively meeting the needs of prudent investors.
