This analysis is by Bloomberg Intelligence analyst Dragos Ailoae. It appeared first on the Bloomberg Terminal.
Bond ETFs see net outflows on rising rates, commodities slide
Cash fled global bond exchange-traded funds in the week ended March 8 as commodity prices slid. U.S. corporate high yield led outflows as high grade inflows stalled and U.S. Treasuries saw net inflows. Recent bond flows also reflect better interest-rate risk appetite. Yet the longer trend shows shorter-duration ETF inflows outpacing longer-duration funds. Rate risk will persist as U.S. yields may climb if the Trump administration loosens fiscal policy, while the Federal Reserve is expected to hike on March 15.
U.S. Treasury ETF inflows were $3.4 billion year-to-date, or 5.7% as a share of assets. U.S. high grade corporate ETFs drew a net $10.2 billion, or 9.2% of AUM. Emerging market bond ETFs took in $4.5 billion, about 13% of assets, while U.S. corporate junk ETFs lost $910 million, or a 1.8% AUM share.
First weekly outflows since November for fixed-income ETFs
A net $800 million fled global bond ETFs in the week ended March 8, the first outflows since the weeks following the U.S. presidential election. Climbing yields and sliding commodities may be the reason as U.S. corporate junk ETFs led outflows of $2.8 billion for the week, equivalent to 6% of managed assets. Issuers in the energy and materials sectors represent almost a quarter of the benchmark Bloomberg Barclays U.S. Corporate High Yield bond index.
Emerging debt exchange-traded funds took in $184 million last week, while funds focused on U.S. corporate high grade took in just $99 million, compared with almost $111 billion of assets under management. U.S. Treasury ETFs attracted a net $600 million for the period, about 1% of AUM.
More interest-rate risk appetite seen in latest bond ETF flows
Bond ETF flows reflect an increase in interest-rate risk appetite, as long and intermediate maturity funds attracted $2.4 billion over the four weeks ended March 8, almost 2% as a share of assets. Longer duration funds have mostly lost assets since interest rates began climbing in July, while shorter-duration products took in flows. The rise in rates gained momentum after the election of president Donald Trump on potentially looser fiscal policies, while the Federal Reserve is expected to raise rates on March 15.
EM, U.S. corporate debt lead fixed income ETF asset growth
Global fixed-income exchange-traded funds’ assets under management have quadrupled since December 2010 to $625 billion as of Feb. 8, reflecting investors’ appetite for fixed-income instruments in a liquid ETF vehicle. Emerging market ETFs expanded the fastest, to about $33 billion from $2 billion in 2010. Assets of U.S. high yield bond ETFs grew about 262%, while U.S. investment grade corporate assets under management increased 300% and U.S. Treasury ETFs 96%.