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.
