It's Been "Risk On, Risk Off" for Fixed-Income Investors

Volatility returned on Monday as the Dow Jones Industrial Average fell over 400 points after gaining over 300 points last Thursday and Friday combined–a reminder to investors that October’s volatility wasn’t a one-and-done shot in the arm.

Brian Gilman of Virtu Financial saw an outflux of capital from high yield debt issues last week and into safer, short-term debt-focused exchange-traded funds (ETFs) like the SPDR Portfolio Short Term Corp Bd ETF (NYSEArca: SPSB), which seeks to provide investment results that correspond to the performance of the Bloomberg Barclays U.S. 1-3 Year Corporate Bond Index. SPSB invests at least 80 percent of its total assets in securities designed to measure the performance of the short-termed U.S. corporate bond market.

Ideally, shorter-term bond issues with maturities of three to four years are ideal to minimize duration exposure should the markets experience further volatility.

“The bulk of the activity to end the week was in the fixed-income space,” said Gilman, who is part of ETF Sales & Trading at Virtu Financial. “High Yield was very active with SJNK, HYG and JNK each trading 4-6x ADV and SJNK and JNK seeing significant outflows. The mood in the space was definitely risk off, and we saw elevated selling in HYLB and HYS as well. Money also flowed out of IG corporates, most notably LQD.  Despite the sell bias in corporates, SPSB (SPDR Short term corporates) did manage to pull in new flows on some block buying.”

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