Investors Get Testy With Bond Funds

Amid fears of rising Treasury yields, some investors pulled money from fixed income funds for the week ended Nov. 1, but some exchange traded funds focusing on bonds managed to see healthy inflows.

“Investors clawed back nearly $8.8 billion from U.S.-based bond funds, with the largest withdrawals of the year recorded from products invested in municipal debt, investment-grade corporates and leveraged loans reports Reuters, citing Lipper data.

The iShares Core US Aggregate Bond ETF (NYSEArca: AGG) and the Invesco Senior Loan ETF (NYSEArca: BKLN) were among the bond ETFs seeing departures last week.

“Withdrawals spanned fixed-income categories. Municipal bonds are issued by U.S. cities and states, but offer holders tax advantages. Investment-grade bonds come from corporations with relatively stronger balance sheets while leveraged loans often come from heavily-indebted companies,” according to Reuters.

Keeping It Short

Bond ETFs gaining assets last week were led by short-dated funds. For example, the SPDR Barclays 1-3 Month T-Bill (NYSEArca: BIL) saw inflows of nearly $957 million for the week ended Nov. 1. BIL tracks the Bloomberg Barclays 1-3 Month U.S. Treasury Bill Index and “seeks to provide exposure to zero coupon U.S. Treasury securities that have a remaining maturity of 1-3 months,” according to State Street Global Advisors (SSgA).

BIL’s duration is just 0.08 years. For the week ended Nov. 1, the iShares 1-3 Year Treasury Bond ETF (NASDAQ: SHY) was also a popular destination, gaining $839 million in new assets. SHY, which tracks the ICE U.S. Treasury 1-3 Year Bond Index, has an effective duration of 1.88 years.

“U.S. Federal Reserve policymakers seem on course to deliver their fourth rate hike of the year in December – the most in any calendar year since 2006 – while letting its large holdings of bonds accumulated during the financial crisis roll off,” reports Reuters.

For more information on the fixed-income markets, visit our bond ETFs category.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.