ETF Buyers Show Faith in U.S. Growth Resisting Ukraine Contagion

Investors are demonstrating confidence in the world’s biggest economy by pouring cash back into risky assets and out of government securities as the Federal Reserve slows stimulus.

BlackRock Inc.’s $13.7 billion exchange-traded fund that focuses on junk bonds reported its biggest daily deposit since October yesterday, helping boost the total volume flowing into the biggest high-yield debt ETFs by $2 billion in the past month, according to data compiled by Bloomberg. Investors funneled $1.9 billion yesterday into U.S. stocks, which have recovered from a 3.5 percent loss in January.

Even as tensions build between the West and Russia over Ukraine, ETF (JNK) buyers are chasing equity returns and bigger yields on the bonds of the most-indebted U.S. companies rather than seeking refuge in higher-rated notes. They’re also disregarding diverging signals on the strength of the nation’s economy as the Fed curtails monthly bond purchases that have bolstered the market.

Two of BlackRock’s ETFs that focus on Treasuries posted their biggest daily withdrawals on record yesterday. The New York firm’s iShares 3-7 Year Treasury Bond ETF (HYG) reported a daily outflow of $3.3 billion, while $3.4 billion was pulled from the iShares 1-3 Year Treasury fund, Bloomberg data show.

Fixed-income ETFs in the U.S. reported $6.1 billion of withdrawals on Mar. 4, compared with a 20-day average of $953.9 million inflows, the data show. While government-debt and emerging-markets funds lost assets, corporate-debt ETFs attracted new money.

Mixed Signals

BlackRock’s iShares iBoxx High Yield Corporate Bond ETF (IEI) reported $188.3 million of deposits yesterday, Bloomberg data show. State Street Corp.’s $10.4 billion junk-bond ETF has received about $410 million of flows since Feb. 4, according to the data.

Consumer spending in the U.S. climbed more than forecast in January, reflecting the biggest increase in services in over 12 years as Americans began to enroll for the Obama administration’s health-care program. That contrasts with data showing that service industries in the U.S. expanded in February at the slowest pace in four years, reflecting a plunge in hiring as harsher weather weighs on consumers and businesses.

Yields on dollar-denominated junk bonds have declined to 6.1 percent, within 12 basis points of the all-time low reached in May, from 6.4 percent a month ago, according to Bank of America Merrill Lynch index data.

To contact the reporter on this story: Lisa Abramowicz in New York at labramowicz@bloomberg.net

To contact the editor responsible for this story: Shannon D. Harrington at sharrington6@bloomberg.net

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