Suzanne McGee
(Reuters) – Investors responded to the sell-off in U.S. bond markets on Wednesday by buying up holdings in the iShares 20+ Year Treasury Bond exchange-traded fund (NASDAQ:), data showed on Thursday.
Better-than-expected March consumer price data sent investors in both U.S. stocks and bonds rushing to hit the sell button on Wednesday, sending bond yields soaring.
But ETF investors at the long end of the yield curve appeared undeterred by the fact that net asset values fell to levels last seen in November. In fact, flows turned sharply positive for the first time in nearly a week as investors funneled a net $459.9 million into the iShares ETF, according to LSEG Group. It was the biggest daily inflow the fund has seen since early February.
This is not the first time investors have poured more money into the $47 billion ETF even as prices and net asset values have fallen sharply. The ETF’s price has dropped nearly 15% over the past 12 months, but it still managed to attract $18.6 billion in inflows, according to VettaFi.
The selloff has attracted some investors looking for bargains, said Brian Armour, ETF analyst at Morningstar.
“The pendulum tends to move too far in either direction, and now there is a sense that there is a buying opportunity” in the TLT ETF and other funds whose prices have fallen as their yields have risen, Armor said.
Others are hoping to lock in higher yields before Federal Reserve policymakers eventually start cutting rates, analysts say.
“Yesterday we saw investors actively turning to fixed income ETFs to gain exposure to the longer end of the yield curve, trying to lock in rates that now look set to remain high for a long time,” said Todd Rosenbluth, ETF strategist at VettaFi.
Traders are betting that the first cut, which will push bond prices higher, is now more likely to occur in September than in June as previously expected.
Rosenbluth said the bond ETF universe represents only a very small part of the overall bond market, meaning that buying or selling even the largest bond ETFs has little impact on the prices of Treasuries themselves. Instead, flow data can signal anything from changes in asset allocation or investors shifting from bond mutual funds to ETFs to hedging activity by traders.