After posting a record year of inflows, fixed income exchange traded started 2015 on a similarly strong note. Amid falling yields, investors poured $7.9 billion into fixed income ETFs in January. That number jumped exponentially by the end of February.
Bond ETFs took in $32 billion globally this year through Feb. 26, reports Katy Burne for the Wall Street Journal, citing Bloomberg data. In February, BlackRock (NYSE: BLK), the world’s largest asset manager, highlighted the brisk pace of capital flowing into bond ETFs, noting that hrough Feb. 12, investors poured $19.6 billion into bond ETFs this year, according to iShares, helping place five bond funds on the top 10 list of ETFs for year-to-date inflows. [Big Money Loves Bond ETFs]
Amid escalating fears that an interest rate hike from the Federal Reserve could come as soon as the second quarter, investors are rapidly departing from bond ETFs this month. Investors already pulled $6.4 billion from bond ETFs during the first 10 trading days of March, Reuters reports, citing TrimTabs Investment Research.
The iShares 20+ Year Treasury Bond ETF (NYSEArca: TLT) experienced its worst three-week outflow since it began trading in 2002 as investors yanked $1.5 billion from the fund, with $633 million pulled last week, reports Alexandra Scaggs for Bloomberg. The outflows suggest growing concern that the Fed is readying to raise rates. Investors have already been dumping Treasuries, with the benchmark 10-year Treasuries jumping from the 1.67% low at the start of February and to its current level at about 2.08%. [Treasury ETF Sees Huge Outflows]
TLT, which would be more sensitive to increases in longer-term rates, is not the only big-name bond ETF that has seen significant outflows this month. As of Monday’s close, the iShares 7-10 Year Treasury Bond ETF (NYSEArca: IEF) is lighter by over $1 billion this month. IEF’s duration is north of seven years.
Of the five largest bond ETFs, only the Vanguard Total Bond Market ETF (NYSEArca: BND) and the Vanguard Short-Term Bond ETF (NYSEArca: BSV) have seen inflows this month. However, the combined $696 million added by BND and BSV in March is barely more than the $684.4 million lost by AGG.
Corporate bond funds have also been riddled with outflows this month. Retail investors pulled $1.96 billion from U.S. high-yield funds for the week ended March 11, with 97% of the total, or $1.91 billion, from ETFs, writes Matthew Fuller of S&P Capital IQ on Forbes.
To this point in March, the iShares iBoxx $ High Yield Corporate Bond ETF (NYSEArca: HYG) and the SPDR Barclays High Yield Bond ETF (NYSEArca: JNK), the two largest junk bond ETFs by assets, have lost $1.88 billion and $727 million, respectively.
Perhaps because 10-year Treasury yields have traded modestly lower this month, investors have not rushed to inverse bond ETFs. The ProShares UltraShort 20+ Year Treasury (NYSEArca: TBT), which seeks to deliver twice the daily inverse performance of the Barclays Capital US Treasury 20+ Year Treasury Bond Index, has seen March inflows of $96.3 million. TBT’s triple-leveraged rival, the Direxion Daily 20-Year Treasury Bear 3X ETF (NYSEArca: TMV), has added $18 million this month.
ProShares UltraShort 20+ Year Treasury