Investors are ditching one of the biggest Treasury-tracking ETFs in a hurry as U.S. yields rocket higher. 

Nearly $1.2 billion was pulled from the $18 billion iShares 20+ Year Treasury Bond exchange-traded fund (ticker TLT) Monday—the third-biggest outflow since its 2002 launch, according to data compiled by Bloomberg. The ETF dropped Tuesday after posting its worst rout since March as 30-year U.S. government yields remained above 2%.

The selloff is being fueled by a combination of hefty investment-grade corporate bond issuance—investors often offload Treasurys to make room for new supply—and a brightening outlook for risk assets, according to Mizuho International’s Peter Chatwell. The S&P 500 hit a record high on the first trading day of 2022, stoked by bets on U.S. economic strength.

“With the consensus view being higher equities and higher long-term bond yields, the market is now pricing that,” said Chatwell, Mizuho’s head of multi-asset strategy. “TLT is unlikely to perform well unless or until risk appetite turns sour.”

TLT dropped another 0.4% on Tuesday to touch the lowest level since October. Stocks continued to gain ground, with the S&P 500 rising 0.4%.

While TLT bled cash, funds that tend to benefit from higher yields attracted inflows. The $46 billion Financial Select Sector SPDR Fund (XLF) absorbed $1.1 billion, its biggest one-day influx since February, as the ETF rallied 1.2%. 

Chatwell sees inflation dynamics and risk sentiment cooling in the second quarter, taking some pressure off TLT. But bond investors should brace for more losses before then.

“When the outlook for equities is more balanced, then the relative income in equities compared to bonds will matter a lot more,” Chatwell said. “At that point, TLT will have upside—but before then, it will be tough to generate a positive return.”

This article was provided by Bloomberg News.