As traders turn risk-off in response to escalating trade war tensions, investors have been diving into safety bets like Treasury bonds and related ETFs.
A weekly data compilation by Bank of America Merrill Lynch revealed the third straight week of equity outflows, with redemptions of $7.2 billion, Reuters reports. Meanwhile, bonds recorded the biggest inflows in 12 weeks at $8.1 billion.
“Off to Treasury Island to flee stormy China-U.S. weather,” BAML titled its weekly note, adding that U.S. Treasuries had seen their biggest inflows since January 2016 at $4 billion. “(This) shows investors positioning for lower yields; BAML private client debt allocation is up to 23.3 percent…Treasury inflows are the most visible expression of positioning for risk-off to date.”
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In the ETF space, Treasury bond-related ETFs were among the most popular picks of the past week. For example, the iShares Short Treasury Bond ETF (NASDAQ: SHV) attracted $848.8 million in net inflows over the past week while iShares 20+ Year Treasury Bond ETF (NASDAQ: TLT) saw $731.4 million in inflows, iShares 1-3 Year Treasury Bond ETF (NYSEArca: SHY) added $450.8 million, SPDR Barclays 1-3 Month T-Bill (NYSEArca: BIL) brought in $416.3 million and iShares 7-10 Year Treasury Bond ETF (NYSEArca: IEF) experienced $319 million in inflows, according to XTF data.
Global markets have been gripped with volatility after U.S. President Donald Trump raised the pressure on China and fueled fears the world’s two largest economies could trigger an all-out trade war.
Trump recently fanned the flames late Thursday when he instructed U.S. trade officials to consider $100 billion in additional tariffs on China. Beijing on Friday warned it would fight back “at any cost” to safeguard its interests.
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Consequently, in response to the escalating tensions, traders have been dumping riskier equity market exposure and shifting assets toward safe-haven plays like U.S. Treasury bonds. Yields on benchmark 10-year Treasury notes have dipped to 2.781% from the 2.94% highs back in February in response to rising bond prices.
For more information on the fixed-income market, visit our bond ETFs category.