ETF Spotlight: BIL Inflows Surge Amid Inflation Angst

Investors piled into SPDR Bloomberg 1-3 Month T-Bill ETF (BIL) this week, even as they largely veered away from larger, interest rate-sensitive fixed-income funds, wary that President-elect Donald Trump's economic policies would send inflation skyward. 

BIL, which combines high yields with low interest-rate sensitivity, led all bond ETFs with a total of more than $850 million in inflows on Monday and Tuesday. The $34 billion (in assets) fund's share price also ticked upward, even as ETFs focused on longer-term Treasurys, including the iShares 20+ Year Treasury Bond ETF (TLT), lost ground amid falling bond prices and rising yields. 

"Trump's tax, tariff, and immigration plans are all inflationary, which potentially translates into higher-for-longer rates," etf.com research lead Kent Thune said. "In this environment, ultra-short-term bond Treasury ETFs like BIL offer a way to capitalize on higher yields without taking on significant interest rate risk, which places downward pressure on bond prices."

BIL: The 'Higher-for-Longer' ETF

Trump made tariffs on foreign goods a key campaign issue, but a range of economists have warned this policy would send prices higher by forcing businesses to account for extra costs as they charge more for their products. Tax cuts on the highest income earners–another Trump promise–that would lead to increases in the national debt, and new limits on immigration, could also exert inflationary pressures, they say. 

On Thursday, the U.S. central bank cut interest rates by 25 basis points after recent data showed inflation cooling without casting the economy into a recession. September's Consumer Price Index (CPI) of 2.4% brought the widely watched measure nearer to the Federal Reserve's goal of 2% annually. 

BIL, which has a 0.14% expense ratio, invests in Treasury bills with three months or less to maturity. 

"Put simply, with funds like BIL, investors can get a 5% yield with almost no downside risk on the price side," Thune said, noting the inverse relationship between bond prices and yield.