Fixed income exodus with a few exceptions   

Investment grade bonds are the go-to for European investors

In a week that saw European domiciled Fixed Income ETFs shed USD$1.25 billion of assets, Investment grade assets stood out as the exception. With inflows of USD $571 million during the second week of May (from May 09th to May 13th), investment grade Bond ETFs topped the flow receivers as the go-to choice for European investors. Reasons behind this influx into high-quality Bond ETFs – which have gathered USD$16 billion of net inflows year-to-date - include rising inflation and investors escaping stock market volatility. Two weeks ago, The Fed's Chair Jerome Powell announced an additional 50 basis points rate hike, which, given this trend is likely to continue, could potentially jeopardize bonds' total returns. However, in this rising rate environment, investors can potentially benefit from the higher yields now offered by fixed income securities which might explain why investors were flocking into higher quality Bond ETFs over the last week.

On the other hand, High Yield ETFs recorded outflows of USD$357 million, bringing year-to-date net outflows to USD$2.6 billion. 

Investors exit the fixed income space 

All issuer types faced a wave of selling last week, but at differing proportions. For instance, Corporate Debt ETFs lost USD$650 million across 346 different ETFs, while Treasury and Agency ETFs, tracking government and government agencies' debt, shed USD$420 million of assets across 480 ETFs. It seems that European investors had no issuer preference.

Out of the top 10 flow receivers, 9 were Government Bond ETFs, while one was a Corporate Debt ETF holding USD$1.35 billion and USD$104 million of assets under management, respectively. Over the past couple of weeks, investors have been looking to immunize their portfolios and protect their investments over the short and intermediate-term. As a result, most of the ETFs within the top 10 flow receivers have a short to medium investment time horizon.  

Top 5 Fixed Income ETFs last week:

• iShares $ Treasury Bond 3-7yr UCITS ETF (CSBGU7): USD$493 million
• iShares $ TIPS UCITS ETF (ITPS): USD$174 million
• Lyxor Euro Government Bond (DR) UCITS ETF (MTXX): USD$153
• iShares € Govt Bond 0-1yr UCITS ETF (IEGE): USD$114 million
• Bloomberg US Liquid Corporates UCITS ETF (CBUSE): USD$104 million

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