Investors piled into fixed income exchange traded funds last month, focusing on short duration fare such as the iShares Short Treasury Bond ETF (NASDAQ: SHV). The Federal Reserve raised interest rates in March and many bond market observers are pricing in as many as four rate hikes this year, prompting investors to embrace funds with lower rate risk.
“Investors put $2.5 billion into the iShares Short Treasury Bond ETF last month, making it the most-popular exchange-traded fund in April, according to FactSet. The ETF, which holds Treasurys that mature in 12 months or less, has taken in $5.8 billion so far this year. Another $1.7 billion has gone into two similar ETFs from Goldman Sachs Group Inc. and State Street,” reports The Wall Street Journal.
The SPDR Barclays 1-3 Month T-Bill (NYSEArca: BIL) has been another popular destination for bond investors this year. BIL seeks to provide investment results that, before fees and expenses, correspond generally to the price and yield performance of the Bloomberg Barclays 1-3 Month U.S. Treasury Bill Index
Rate Forecasts for Remainder of 2018
As the Federal Reserve continues to tighten policy, the ability to generate returns in short-dated fixed income ETFs has increased. As a result, money has been flowing into short term treasuries and cash type products to gain interest from investors.
BIL is less exposed to fluctuations in interest rates than longer duration securities and thus a more secure investment.