Short-term bond ETFs take center stage over fears of rate hikes

Fixed income ETFs domiciled in Europe remained appealing to investors according to Trackinsight’s fund flow data, bringing in USD$310 million[1] of investor capital between August 26th and September 2nd. This marks their seventh consecutive week of net inflows, albeit the third week of negative average returns (-1.49% compared to the previous week’s -0.79%). 

Government bond ETFs raked in the most investments having attracted USD$396 million of net inflows. In sharp contrast corporate debt ETFs continued to shed assets with USD$160 million in net outflows over the week across all credit ratings, compared to USD$195 during the previous week. On the credit rating level, investment grade ETFs witnessed the largest inflows bringing in USD$454 million in investor money, whereas their high yield counterparts registered almost USD$71 million in net outflows over the same period. 

The Fed Chairman’s comments about maintaining a hawkish stance on rate hikes triggered a steady increase in treasury bond yields (which usually fall when bond prices fall), with ETF flows into short-term fixed income vehicles as investors responded to central bankers’ warnings at the annual Jackson Hole conference about higher interest rates for the foreseeable future. Money markets and short-duration strategies resonated with investors since they offer potentially lower volatility in comparison to longer-duration bonds while preserving most of the carry. Bond ETFs with maturities less than one, five, and between one and five years registered USD$588 million in net inflows over the course of last week. The top three flow leaders in the fixed income universe were short-term bond ETFs with iShares $ Treasury Bond 0-1yr UCITS ETF (IB01) attracting USD$148 million inflows, and Xtrackers II iBoxx Eurozone Government Bond Yield Plus 1-3 UCITS ETF (XYP1M)  and iShares $ Treasury Bond 1-3yr UCITS ETF (IBTA) registering USD$144 million and USD$95 million respectively. 

On the other end of the spectrum, bond ETFs that witnessed significant outflows included the Lyxor EuroMTS Highest Rated Macro-Weighted Govt Bond 3-5Y (DR) UCITS ETF (AAA35) and the iShares Pfandbriefe UCITS ETF (DE) (EXHE), losing USD$405 million and USD$201 million respectively.

The top-performing ETFs of last week included short-term, fixed income vehicles, with a particular focus on lower-duration Treasuries. Top funds included the iShares $ Floating Rate Bond UCITS ETF (FRMXNX) which posted 0.76% in gains, while the JPMorgan ETFs (Ireland) ICAV - BetaBuilders US Treasury Bond 0-3 Months UCITS ETF (MB3Mx) and the SPDR Bloomberg 1-3 Month T-Bill UCITS ETF (ZPRM) both generated 0.73% of returns.

Top 5 fixed income flow receivers last week:

• iShares $ Treasury Bond 0-1yr UCITS ETF (IB01): USD$148 million
• Xtrackers II iBoxx Eurozone Government Bond Yield Plus 1-3 UCITS ETF (XYP1M): USD$144 million
• iShares $ Treasury Bond 1-3yr UCITS ETF (IBTA): USD$95 million
• iShares € Corp Bond ESG UCITS ETF (SUOE): USD$84 million
• AMUNDI PRIME EURO CORPORATES UCITS ET (PR1C): USD$83 million

[1] Fund Flow Data as of September 2nd, 2022.

Please note this article is for information purposes only and does not constitute investment advice.