Mega bond sell-off spurs $1.2 billion outflow from Treasury fund

As stocks trade near record highs, investors are abandoning strategies involving long-term Treasuries

Nov 11, 2019 @ 4:15 pm

By Bloomberg News

Investors are pulling the plug on a strategy tracking long-dated Treasuries as U.S. stocks trade near all-time highs.

The iShares 20+ Year Treasury Bond exchange-traded fund (TLT) posted its worst week of outflows on record, with traders yanking more than $1.2 billion, according to data compiled by Bloomberg. The yield on the 10-year U.S. government bond soared over the same time span, approaching 2%.

"Much of the recent sell-off is undoubtedly a function of the increased prospect for the economy's successful soft landing and accompanying inflationary ambitions," as well as progress on the trade war, Ben Jeffery, a strategist at BMO Capital Markets, wrote in a note to clients last week. "Even if our underlying cynicism leaves us apprehensive that will ultimately play out, the chance could inspire further long-end cheapening over the near term."

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A thawing in trade tensions between the U.S. and China and the anticipation of improving economic growth have boosted prospects for risk assets. That's a reversal of fortunes for TLT, which saw investors pile in all year amid global growth fears and trade war angst.

While President Donald J. Trump lately downplayed the amount of progress made in the negotiations, the S&P 500 Index still hovers near a record high.

[More: SEC calls out conflicts of interest in TDFs]

Elsewhere, the iShares 7-10 Year Treasury Bond ETF (IEF) had an outflow of about $553.3 million last week, data compiled by Bloomberg show.

"The risks of recession are decreasing," said Chris Gaffney, president of world markets at TIAA. "Investors are now looking at shortening up duration and perhaps the next move that could happen, if anything, may be an interest-rate increase by the Fed."

[More: Schwab's Kleintop says advisers should ride market momentum shift]

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