Investors responded to the selloff in U.S. fixed income markets Wednesday by snapping up holdings in the bellwether iShares 20+ Year Treasury Bond exchange-traded fund (ETF), data on Thursday showed.
Hotter-than-expected consumer price readings for March sent investors in both U.S. stocks and bonds scurrying to hit the “sell” buttons Wednesday, driving bond yields sharply higher.
But ETF investors at the long end of the yield curve seemed undaunted by the fact that net asset values plunged to levels last seen in November. In fact, flows turned sharply positive for the first time in nearly a week, as investors directed a net $459.9 million into the iShares ETF, according to data from LSEG Group. That was the largest daily inflow the fund has witnessed since early February.
It is not the first time that investors have allocated more funds to the $47 billion ETF even as prices and net asset values slumped. Over the last 12 months, the ETF’s price has tumbled nearly 15% but it still managed to attract $18.6 billion in inflows, according to data from VettaFi.
The sell-off has attracted some investors looking for bargains, said Bryan Armour, ETF analyst at Morningstar.
“The pendulum tends to move too far in either direction, and now there’s a perception that there’s a buying opportunity” in the TLT ETF and other funds whose prices have fallen as their yields soared, Armour said.
Others are looking to lock in higher yields before Federal Reserve policy makers eventually begin cutting rates, said analysts.
“We saw investors actively turning to fixed income ETFs yesterday to get exposure toward the longer end of the yield curve in an effort to lock in rates that now seem likely to stay higher for longer,” said Todd Rosenbluth, ETF strategist at VettaFi.
Traders are betting the first cut -- which would propel bond prices higher -- is now more likely to happen in September than in June, as previously anticipated.
Rosenbluth said the bond ETF universe is only a very small part of the overall bond market, meaning that buying or selling of even the largest bond ETFs has little to no impact on the prices of Treasury bonds themselves. Instead, flows data can signal anything from asset allocation shifts or moves by investors out of bond mutual funds into ETFs to hedging activity by traders.
Retail traders are piling into risky bets after recouping all the losses made in the last two years as a rally in AI poster child Nvidia’s shares and bets on easing monetary policy pushed U.S. stocks to record levels.
The S&P 500 has jumped 9% this year, boosted partly by a 72% surge in its best performing stock, Nvidia, that holds the highest weightage in average retail traders’ portfolio at 9.3%.
This helped the average individual investor portfolio to wipe off all losses made since the bear run started in 2022, according to Vanda Research.
“As the focus shifts from recouping losses to making new highs, retail (trader’s) willingness to take on more risk has clearly increased,” Vanda Research analysts Marco Iachini and Lucas Mantle said.
Individual investors have ramped up buying triple leveraged exchange traded funds (ETFs), which are a means for day traders to place short-term bets that sometimes track twice or thrice the daily return of the underlying index or stock.
The 10-day average of U.S. retail traders’ purchase of ProShares UltraPro QQQ, which amplifies the daily moves of Nasdaq 100 index by threefold, hit its highest in about two years in mid-March, Vanda Research data showed.
At the same time, investments in Direxion Daily Semiconductor Bull 3X Shares, which triples a chip index’s daily performance - hit their highest level this year in at least three.
The retail traders’ high-risk, high-return trade has gained traction on improving risk appetite, while investors are also putting fresh capital to work, benefiting popular technology stocks amid the AI excitement.
“Tech stocks are retail investors favorites across the global platform, making up all of the top ten most held,” said Ben Laidler, global markets strategist at digital brokerage eToro.