This week’s Federal Reserve meeting came and went without an interest rate hike, but that is not ebbing the flow of redemptions from fixed income exchange traded funds.
Investors “pulled $1.44 billion out of fixed-income funds since May 31, on course for the biggest monthly withdrawal since September,” report Wes Goodman and Eshe Nelson for Bloomberg.
Ten-year Treasury yields are lower by about 3% Friday, but have surged 18.1% over the past 90 days and 8.4% since May 31. Over that period, four of the 10 worst ETFs in terms of lost assets are bond funds but only one of top 10 asset-gathering ETFs – the Vanguard Total Bond Market ETF (NYSEArca: BND) – is a fixed income fund.
High-yield bond ETFs have been hit particularly hard by outflows as the SPDR Barclays High Yield Bond ETF (NYSEArca: JNK) and the iShares iBoxx $ High Yield Corporate Bond ETF (NYSEArca: HYG) have lost over $2.7 billion combined since May 31, making the pair the two worst ETFs in terms of lost assets over that time.
Some market observers attributed the recently solid showings by junk bonds to the rebound in oil prices, which helped support energy bonds that plunged in late 2014 in response to the falling crude oil prices.
Junk bonds also tend to have shorter maturities and a much higher yield over benchmarks than higher-rated bonds, which can help cushion investors from the negative effects of rising rates and higher inflation. For instance, JNK has a 4.38 year duration and a 5.61% 30-day SEC yield, and HYG shows a 4.13 year duration and a 5.14% 30-day SEC yield. [Hedged Bond ETFs to Diminish Rate Risk]
The iShares 20+ Year Treasury Bond ETF (NYSEArca: TLT) has bled $633.1 million since May as that fund is in the midst of one of its worst multi-month declines since it debuted in 2002. Struggles by traditional bond ETFs are stoking inflows to bearish equivalents.
Since May 31, the ProShares UltraShort 20+ Year Treasury (NYSEArca: TBT) and the Direxion Daily 20-Year Treasury Bear 3X (NYSEArca: TMV), have added $131.4 million and $35 million, respectively, bringing their second-quarter inflows to $149.3 million and $143 million. The ProShares Short 20+ Year Treasury (NYSEArca: TBF), which aims to deliver the daily inverse performance of the Barclays Capital 20+ Year U.S. Treasury Bond Index, has added nearly $144 million in new assets this quarter.
Direxion Daily 20-Year Treasury Bear 3X Shares
Tom Lydon’s clients own shares of HYG, JNK and TLT.