Falling Yields Chase Investors From a Financial Services ETF

Declining Treasury yields are chasing investors from some exchange traded funds tracking financial services stocks, including the iShares U.S. Financial Services ETF (NYSEArca: IYG).

“Investors yanked $174 million from the iShares U.S. Financial Services ETF, or IYG, on June 19. That’s a record outflow for the fund which — with over 60 percent of its holdings in U.S. banks — has the largest exposure among broad financials ETFs. And volume was over $214 million, almost 15 times the average daily turnover in the past year,” reports Bloomberg.

The $1.87 billion IYG recently turned 18 years old and tracks the Dow Jones U.S. Financial Services Index. IYG holds 115 stocks.

Higher Yields Better For Banks

Earlier this year, financials were also propped up by a rise in bond yields as higher interest rates typically widen the margin spread between bank loans and deposits. The spreads will further widen as the Federal Reserve has stated its intentions to raise interest rates in response to economic growth and rising inflation.

Banks are usually positively correlated to higher Treasury yields because as those yields rise, banks can charge higher rates on loans.

“Mounting trade war concerns and declining Treasury yields this week have put pressure on bank stocks. The yield on 10-year Treasuries was as low as 2.88 percent Wednesday, the lowest since June 1, putting investors’ hopes for 3 percent on hold,” according to Bloomberg.