Corporate Credit ETF Outflows Reflect Rate Risk Anxiety

Fixed-income investors seem to be taking interest rate risk very seriously ahead of the Federal Reserve December meeting, trimming exposure to intermediate-term corporate bond ETFs.

The iShares iBoxx $ High Yield Corporate Bond ETF (NYSEArca: HYG), which tracks speculative-grade corporate debt, experienced record outflows on Thursday as investors yanked almost $1 billion out of the junk bond ETF in one day, according to Bloomberg data.

Meanwhile, the iShares iBoxx $ Investment Grade Corporate Bond ETF (NYESArca: LQD), the largest ETF that tracks investments-grade corporate debt, also lost $785 million in assets on Thursday.

In total, HYG experienced $1.4 billion in net outflows over the past week while LQD saw $1 billion in outflows.

Bond yields have been slowly pushing higher over October, with yields on benchmark 10-year Treasury bonds at 1.85%, its highest level since May. Investors have been selling off fixed-income assets and pushing up yields as more anticipate a December interest rate hike.