Data suggest fixed income investors are ditching corporate bond exchange traded funds, including the iShares iBoxx $ Investment Grade Corporate Bond ETF (NYSEArca: LQD), in favor short-dated Treasury ETFs.
Flows data also indicate investors are departing the iShares iBoxx $ High Yield Corporate Bond ETF (NYSEArca: HYG), the largest high-yield corporate bond ETF.
“Almost $1.4 billion has fled three popular debt ETFs over the past two days, according to Bloomberg data. Among them is the largest ETF tracking high-yield bonds, the iShares iBoxx $ High Yield Corporate Bond ETF (HYG), which recorded outflows of $715 million, the most since a three-week selloff over a month ago,” reports Bloomberg.
Previously, investors widely embraced corporate bond funds in the search for added income and yield. Fueling the increased demand for debt assets, tumbling yields on safer government and corporate debt pushed investors towar riskier and higher yielding debt, like junk bonds. Furthermore, U.S. corporate bonds are enjoying a stronger tailwind in an environment of strong economic growth, healthy earnings and dropping default rates.
Beneficiaries of the move away from corporate debt include the iShares 1-3 Year Treasury Bond ETF (NASDAQ: SHY) and the iShares Short Treasury Bond ETF (NASDAQ: SHV). The $7.22 billion SHY has an effective duration of just 0.41 years while the $11.5 billion SHV has an effective duration of about 1.9 years. Duration measures a bond’s sensitivity to changes in interest rates.
“The iShares Short Treasury Bond ETF (SHV) has seen shares outstanding advance 7.7 percent so far this week, reaching the highest level since its creation in 2007, according to data compiled by Bloomberg. The fund absorbed nearly $500 million on Tuesday, it’s biggest daily inflow in about two years, the data show. A similar product, the iShares 1-3 Year Treasury Bond ETF (SHY), took in $235 million in the past two days,” according to Bloomberg.
For the week ended Dec. 6th, SHV saw inflows of $551.1 million, a total surpassed by just seven other ETFs. SHV was the top asset gatherer among bond ETFs over that period.
For more information on corporate debt, visit our corporate bonds category.
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