ETF Flows Show $6B Targeted Bet On Treasurys

May 22, 2014

Big April inflows for funds focused on intermediate Treasurys.

UST and IEF Flows

Flows data from May show that investors are taking big bets on intermediate Treasurys: The iShares 7-10 Year Treasury Bond ETF (IEF | A-51) has seen a huge influx of capital so far in May, more than doubling its AUM from $4.5 billion to $9.7 billion in just three weeks.

Similarly, the ProShares Ultra 7-10 Year Treasury ETF (UST), a 2x leveraged take on the same Barclays index, increased its AUM from $29 million to $612 million in that time.

That's a total of $6 billion of inflows into those two ETFs, which is about 17 percent of all the assets invested in ultra-deep U.S. Treasury ETFs. IEF's inflows alone account for more than 65 percent of all bond ETF flows for the month.

Is this a new trend, or the work of one big investor? We can't know for sure, but most of the inflows to IEF happened in two big chunks: about one-third on May 1, and the rest on May 20. Meanwhile, investment-grade corporate bond funds of similar maturity have seen only modest inflows, suggesting the investor(s) are explicitly focused on the exposure this one index delivers—not just any investment-grade debt.

Whoever made this call has been right so far: The 10-year Treasury rate is down from 2.67 to 2.52 percent, while IEF is up 1.5 percent since April. Remember though: The second leg of flows only came on Tuesday. Will there be another rally in intermediate Treasurys?

 

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