The latest market sell-off that saw the Dow Jones Industrial Average lose over 1,300 points in two trading sessions caused investors to flee towards floating-rate bond ETFs and Treasury Inflation-Protected Securities (TIPS) as they dumped U.S. equities.
“The fight continues between bonds and stocks,” said Joseph LaGrasta, ETF Sales & Trading at Virtu Financial. “Treasuries began the day down and equities were holding the line, but that soon changed as equity markets again started to rumble from yield worries. This spurred a flight to safety dumping money into treasuries. As yields started dropping the market turned back around only to have one more slide at end of the day. Today everything looks rosy again and Treasuries resume their fall.”
Lagrasta noted that yesterday’s sell-off saw mixed results with inflows into TIPS, cash and fixed-income ETFs that incorporated floating-rate notes.
“While fixed income ETF’s were busy, flow was quite mixed,” said LaGrasta. “We saw some clients dipping into TIPs and a lot of folks buying floating rate note ETF’s and cash products.”
Investors can look to ETFs with floating-rate debt issues, such as the SPDR Blmbg Barclays Inv Grd Flt Rt ETF (NYSEArca: FLRN), which seeks to provide investment results that correlate with the price and yield performance of the Bloomberg Barclays U.S. Dollar Floating Rate Note < 5 Years Index.