They are trying to protect themselves from Fed rate hikes, which could send long-term bonds prices reeling.
Bond investors are shifting into ultra-short-term exchange-traded funds, as they prepare for Federal Reserve interest rate hikes.
That’s because longer-term bond funds could fall substantially when the Fed tightens, while ultra-short-term funds, holding debt that matures in less than a year, should be more stable.
The news came from Bloomberg. It reported that even investors in short-term ETFs, with bonds that mature in less than five years, are switching into ultra-short-term funds
The PIMCO Enhanced Short Maturity Active ETF MINT saw an almost $900 million inflow, the biggest weekly total since it began in 2009, according to Bloomberg. At the same time, it reported a $1.6 billion outflow for the Vanguard Short-Term Bond ETF BSV. That’s the largest outflow in three years.
As for the Fed, it has indicated it’s likely to begin raising rates this month, and experts generally anticipate at least four rate hikes this year. Bank of America forecast seven. So investors are looking to protect themselves.
“The hunt is on for anything that resembles a store of capital,” Peter Chatwell, head of multi-asset strategy at Mizuho International, told Bloomberg.
“What this flow shows is how the chain reaction of Fed hikes and quantitative easing will take liquidity out of duration risk assets, into the short-duration products.”
According to ETF Database, the biggest ultra-short-term ETFs are JPMorgan Ultra-Short Income ETF JPST, with $18.3 billion of assets as of Feb. 4; SPDR Bloomberg 1-3 Month T-Bill ETF BIL, with $15.5 billion; and iShares Short Treasury Bond ETF SHV, with $14.1 billion.
