Short-dated Treasury ETFs see huge inflows

Demand at short end could ease funding costs and make stocks look better by comparison

May 14, 2018 @ 3:22 pm

By Bloomberg News

There are signs that the bull market's putative Achilles' heel — crisis-era short-term dollar funding costs — might heal soon.

Thank heavy inflows into low-duration funds.

Investors seeking to pare interest-rate risk poured a hefty $1.1 billion into the iShares 1-3 Year Treasury Bond ETF last week, the most since October 2014 and the fourth-largest allocation into U.S.-listed products across asset classes.

The rising demand for short-term debt has been fueled by inflation concerns that contributed to the recent market sell-off, and prompted investors to avoid assets with elevated duration risk such as longer-term bonds.

Any downward pressure on yields at the front end may also benefit stocks — whose appeal increases as the return on safe assets shrinks — while easing borrowing costs for companies.

Passive fixed-income products with short duration took in $1.8 billion in the week ended May 11, some 1.4% of their total assets, according to data compiled by Bloomberg. Flows into government bond funds with limited rate risk are running at one of their hottest five-day paces relative to the past year, according to Deutsche Bank.

"If these flows are sustained, they should help richen the front end, steepen the curve, and drive down front-end spreads," Deutsche strategist Steven Zeng wrote in a recent note. "The cash could also be invested into money markets, putting downward pressure on commercial paper rates and three-month Libor."

(More: Fidelity manager hasn't been this excited by bonds in five years)


What do you think?

View comments

Recommended for you

Featured video


What it took to win an Excellence in Diversity & Inclusion Award

Editor Fred Gabriel and special projects editor Liz Skinner explain how InvestmentNews chose the winners of our inaugural Excellence in Diversity & Inclusion Awards.

Latest news & opinion

Tax-credit investigation may trip up Wells Fargo

Justice Department is investigating bank's dealings in tax credits for low-income housing, sources say.

10 biggest boomtowns in America

These metro areas are seeing the biggest influx of people, work opportunities and business growth.

SEC ponders creating video to help investors decide between investment adviser and broker

Chairman Jay Clayton has suggested the host on the video would deliver similar information as conveyed on disclosure Form CRS.

Genworth raises long-term-care insurance costs an average 58%

The cost increases, approved by regulators in the second quarter, affect roughly $160 million of in-force premiums.

Registered reps, firms in brokerage industry decline: new Finra report

Regulator publishes first-ever snapshot of sector it oversees.


Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting It'll help us continue to serve you.

Yes, show me how to whitelist

Ad blocker detected. Please whitelist us or give premium a try.


Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print