Specifically, UST (ProShares Ultra 7-10 Year Treasury Bond) took in a staggering $442 million last week, which equated to approximately 80% of the total assets in the fund at the time of the creation activity last week. UST is designed to provide twice the daily leveraged returns of the Barclays 7-10 Year Treasury Bond Index, and with treasuries falling rapidly last week into the face of recent equity strength, this institutional buyer of UST seems to be playing “contrarian” to the current “risk on” equity trend in the marketplace. These contrarians using UST must believe that the recent TBT (ProShares Ultra Short 20+ Year Treasury Bond) call buyers are dead wrong as well, since we have seen a recent acceleration of call buying in this leveraged/inverse product. [Options Trading Explodes in Bearish Treasury ETF]
TBT rises in price as longer dated Treasuries fall. Similarly, LQD (iShares Investment Grade Corporate Bond) also took in an impressive $200 million last week, solidifying the fund’s status as the largest fixed income ETF out there in terms of total assets under management (currently a lofty $23 billion plus). LQD owns paper from issuers including AT&T, Wells Fargo, Wal-Mart, and General Electric. The fund’s continued popularity with investors even as the equity market has generally stabilized, reflects that the marketplace is still attracted by yields offered by high grade corporate issuers, and perhaps an unwillingness to dive head first into higher beta equity exposure in the stock market. Thus, a quick takeaway from this could be that there is still “substantial” cash remaining on the sidelines in many cases, and not currently wholesale invested in equities.
Outflows leaders last week included SPY and DIA (SPDR DJ Industrials), losing a collective $3.5 billion, while IWF (iShares Russell 1000 Growth), SHY (iShares 1-3 Year Treasury Bond), and XLP (SPDR Consumer Staples) were also among the top ten in terms of redemptions. On the whole, net creation/redemption activity across the board was on relatively lighter levels in terms of absolute dollars compared to most weeks.
With last week’s atmosphere being one of “no news is good news,” bulls are likely encouraged to see us halfway through August with barely a tremor that looks anything like last year’s disastrous month of August which was fueled by European breakdown after breakdown. With equities challenging recent highs and the SPX over the 1400 “psychological level,” Treasuries finally receding last week in terms of prices falling and yields rising, those looking for a strong close to end 2012 will likely feel much more comfortable if we can close the book on August of 2012 on a high note, and perhaps begin to forget about some of last summer’s painful equity market memories.
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