Investors in exchange-traded funds are done with corporate bonds.
At least that’s what you see in the recent flow numbers. Almost $1.4 billion has fled three popular debt ETFs over the past two days, according to Bloomberg data. Among them is the largest ETF tracking high-yield bonds, the iShares iBoxx $ High Yield Corporate Bond ETF (HYG), which recorded outflows of $715 million, the most since a three-week selloff over a month ago.
But that fund isn’t alone. The iShares investment grade corporate bond ETF known as LQD saw $424 million of outflows over those two days. And the iShares 1-3 Year Credit Bond Fund, ticker CSJ, saw its largest pullback since June 2014, as buyers removed $230 million from the fund in that period.
Still, other fixed-income ETFs have been feeling the love, as buyers may be moving money out of credit and into Treasury funds.
Between jitters from the tax bill, policy tightening and a fast approaching debt ceiling deadline, short-term rates have skyrocketed. But for some intrepid U.S government debt investors, now is the time to place bullish bets.
The iShares Short Treasury Bond ETF (SHV) has seen shares outstanding advance 7.7 percent so far this week, reaching the highest level since its creation in 2007, according to data compiled by Bloomberg. The fund absorbed nearly $500 million on Tuesday, its biggest daily inflow in about two years, the data show. A similar product, the iShares 1-3 Year Treasury Bond ETF (SHY), took in $235 million in the past two days.
This fresh cash appears to be the result of a pretty specific trade, according to Josh Lukeman, head of delta one trading for the Americas at Credit Suisse Group AG.
“Looks like a one-off allocation, perhaps from one big asset manager,” he said, “as opposed to a direct opinion on the steepening trade.”
Changes Coming
It’s a bet that stands in direct opposition to market moves over the past few days. As investors focus on efforts to avert a U.S. government shutdown and a growing consensus that the Federal Reserve will raise rates again this month, yields on ultra-short Treasuries have shot up. Especially sensitive to changes in interest rates, the yields on 12-month Treasuries have advanced to their highest level since 2008.