The last several days have been absolute carnage for many fixed income segments of the market, and their corresponding ETFs.

We have highlighted options trading with bearish motivations toward longer dated treasuries for months now, involving call buying in ProShares UltraShort 20+ Year Treasury Bond (NYSEArca: TBT) and put buying in iShares 20+ Year Treasury Bond (NYSEArca: TLT) and this trading has gathered significant momentum in the past two sessions as bond yields have risen sharply and thus prices have plunged.

Trading volumes have also been literally off the chart recently, with TLT for example trading over 24 million shares yesterday versus its typical average of about 7 million shares per day. [Bond ETFs Fall]

The fallout has not been confined to the longer dated U.S. Treasuries space however, as we have noted severe selling pressure in short and medium term dated treasury based funds, such as iShares 1-3 Year Treasury Bond (NYSEArca: SHY) and iShares 7-10 Year Treasury (NYSEArca: IEF) and related ETFs over the past couple sessions as well as in investment grade corporates such as iShares Investment Grade Corporate Bond (NYSEArca: LQD) and Vanguard Short Term Corporate Bond (NYSEArca: VCSH), and volumes have been literally off the charts, especially during Wednesday’s trading day. [Higher Yields Punish Treasury ETFs]

If there is a “last man standing” in the fixed income space it feels, and looks like it is High Yield Corporates, in that in spite of the selling pressure in other corners of the fixed income market, funds such as SPDR High Yield Bond (NYSEArca: JNK), iShares High Yield Corporate Bond (NYSEArca: HYG), Peritus High Yield (NYSEArca: HYLD), PowerShares High Yield Corporate Bond (NYSEArca: PHB), and PIMCO 0-5 Year US High Yield Corporate Bond (NYSEArca: HYS) for example have held relatively well considering the steep sell-off in other areas.

Based on this week’s activity in the fixed income space, we would imagine that we will see significant asset outflows via redemptions across the fixed income ETF space, particularly in the Treasuries and Investment Grade Corporates segments, but it does not appear that High Yield corporates have been affected if at all.

With equities challenging recent highs and perhaps some complacency finally entering the marketplace in regards to equities in general, it seems feasible to believe that institutional investment managers are simply rotating out of lower yielding asset classes such as Treasuries (many have lamented about the paltry yields offered by longer dated treasuries over the past several years) and Investment Grades, and into higher risk, but higher yielding assets including possibly equities and high yield bond funds.

Peritus High Yield

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Full disclosure: Tom Lydon’s clients own SHY and LQD.

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