Investors poured into fixed income ETFs in April as equity market volatility jumped with several month’s leading asset-gathering ETFs being bond funds.
For example, the iShares Short Treasury Bond ETF (NASDAQ: SHV), iShares 20+ Year Treasury Bond ETF (NASDAQ: TLT) and the iShares 1-3 Year Treasury Bond ETF (NYSEArca: SHY) were among the top ETFs in terms of new assets added last month.
The iShares Floating Rate Bond ETF (NYSEArca: FLOT) was another prolific asset gatherer in April. Floating rate notes, like the name suggests, have a floating interest rate.
Specifically, the notes’ have a so-called reset period with interest rates tied to a benchmark, such as the Fed funds, LIBOR, prime rate or U.S. Treasury bill rate. Due to their short reset periods, these floating rate funds have relatively low rate risk.
“Interest-rate risk also guided corporate-debt exposures, with investors allocating a record $1.3 billion to the iShares Floating Rate Bond ETF,” reports Bloomberg.
“More than $14 billion was added to U.S.-listed exchange-traded debt funds last month, the most since October 2014, according to Bloomberg Intelligence data. That’s the third consecutive month that funds holding bonds attracted more cash than their stock counterparts — the longest streak since at least May 2011,” reports Bloomberg.
“U.S.-listed bond ETF flows have attracted $14.7 billion so far in April, on track for [the]biggest month of net inflows since October 2014 (October 2014 had inflows of $17.3 billion),” said Steve Laipply, head of U.S. iShares fixed income strategy at BlackRock.
Strong Demand for Fixed Income
Foreign investors hold about 43% of U.S. government debt, the lowest since November 2016. The foreign buyers group has steadily reduced their stake in U.S. debt from a peak of 55% during the financial crisis. However, data suggest other investors are picking the slack by embracing bond ETFs and are showing a preference for shorter duration fare.
“With duration fears taking hold, investors favored short-term U.S. government debt, sinking $2.3 billion into an iShares ETF that holds Treasury bonds with remaining maturities of between one month and a year, the most since January 2016,” according to Bloomberg.
For more information on the fixed-income market, visit our bond ETFs category.