Connect with us

Trading

US bond ETF trading hits record volumes ahead of Fed rate decision

Latest ETF news

Visit our ETF Hub to learn more and explore our in-depth data and comparison tools

Trading volumes in U.S. exchange-traded bond funds hit a record high on June 13 as soaring inflation prompted investors to bet on a more aggressive path for interest rate hikes by the Federal Reserve during its meeting later in the week.

US bond ETF turnover hit $58 billion on June 13, a one-day record that surpassed $53 billion in trades in the previous busiest session in March 2020, when financial markets went into free fall at the start of the coronavirus pandemic.

“The record volume is a sign that investors are increasingly using fixed-income ETFs as the vehicle of choice during market stress,” said Todd Rosenbluth, head of research at VettaFi, a data provider.

Yields on two-year US Treasuries jumped 24 basis points on June 13 amid a trading frenzy. This took the rise in yields so far this year to 252 bps, reflecting changing investor expectations about the extent of Fed monetary tightening and inflicting severe hardship on bondholders.

BlackRock’s iShares iBoxx $ High Yield Corporate Bond ETF (HYG) saw $9 billion in trades on June 13, more than double its average daily volume over the past 20 trading days, according to the largest asset manager in the world.

HYG’s most direct competitor, State Street’s SPDR Bloomberg High Yield Bond ETF (JNK), also saw record volumes of $4 billion on the same day.

“Trading volumes have increased across all ETFs as markets have become more volatile. This reflects investors’ desire to find liquidity through ETFs as they adjust their portfolios to the reality of an aggressive Fed,” said Matthew Bartolini, head of SPDR Americas research at State Street Global Advisors.

But significant discrepancies have also emerged between the prices of some fixed-income ETFs and the value of the bonds that make them up, echoing the price upheavals that occurred in March 2020.

HYG closed at a discount to its net asset value of 122 basis points on June 13, compared to an average closing premium of 11 basis points over the previous 12 months, according to BlackRock.

“Not all high yield bonds trade daily or at the same frequency as a fixed income ETF. So the net asset value of a bond may be more stale than the price of the ETF, especially given the rapid changes in the bond market,” Rosenbluth said.

HYG’s trading volumes were equivalent to 65% of all high-yield OTC trades on June 13, according to BlackRock.

He insisted that the divergence from net asset value was a demonstration of the price discovery process that takes place through ETFs, the most liquid vehicles operating in the fixed income markets. In a falling market, cash bonds, which typically trade less frequently, later catch up to the lower price levels indicated by the ETF.

“Credit ETF prices are often a leading indicator for the [rest of the] bond market. In times of market stress, bond ETFs have always provided price discovery and the ability for investors to express their differing investment views in real time,” said Carolyn Weinberg, global head of product for iShares and index investing at BlackRock.

U.S.-listed bond ETFs generated net inflows of $34 billion in May, their second-biggest monthly gain on record, according to State Street. But so far this month, investors have withdrawn $1.8 billion from bond ETFs, he said.

Withdrawals from investment-grade, high-yield and bank-loan ETFs reached a combined total of $6.4 billion so far in June, but were partially offset by positive inflows of $3.7 billion. dollars into short-term government bond ETFs, traditionally one of the safest corners of the fixed market. income markets.

“The outflows coincided with weakness in credit markets, with yields on high yield bonds exceeding 8% for the first time since March 2020,” Bartolini said.

Some observers worry that sharp declines in bond ETF prices could exacerbate a sell-off in the underlying cash bond market, but several studies have dismissed such concerns.

Rosenbluth said some ETF investors might have sold their holdings at a deeper discount to net asset value, but were still able to exit their positions in a timely manner with limited costs by trading a bourse.

Click here to visit the ETF hub

#bond #ETF #trading #hits #record #volumes #ahead #Fed #rate #decision

Click to comment

Leave a Reply

Your email address will not be published.

Trending