Rotation Away From Duration Picks Up Steam in Fixed-Income ETFs

(Bloomberg) -- Even with a 10-year yield near 3 percent, there’s still no infatuation with duration.

Investors in fixed-income exchange-traded products are following the likes of Pacific Investment Management Co. by seeking shelter in short-term issues or floating-rate offerings amid a rising rate environment in which inflation might be poised to accelerate.

In fact, the six debt products that topped the flows leaderboard on Tuesday all had one thing in common: limited interest-rate risk.

The iShares 1-3 Treasury Bond ETF (SHY) led the way by taking in $615 million, the most in nearly 20 months.

These products all have relatively low duration -- that is, their price is less sensitive to fluctuations in interest rates. On average, the modified duration of the six funds is less than two years. Meanwhile, the iShares 20+ Year Treasury Bond ETF (TLT) -- which suffered a daily withdrawal of $130 million on Tuesday -- has a modified duration of 17.5 years.

Tuesday’s episode marks the continuation of a 2018 trend that’s seen a much larger appetite for short-term mutual and exchange traded debt funds compared to their longer-term counterparts.

The other short-term products that received inflows were the Vanguard Short-Term Treasury ETF (VGSH), the PIMCO Enhanced Short Maturity Active Exchange-Traded Fund (MINT), the iShares Floating Rate Bond ETF (FLOT), the SPDR Bloomberg Barclays Investment Grade Floating Rate ETF (FLRN), and the iShares 1-3 Year Credit Bond ETF (CSJ).

To contact the reporter on this story: Luke Kawa in New York at lkawa@bloomberg.net.

To contact the editors responsible for this story: Jeremy Herron at jherron8@bloomberg.net, Joanna Ossinger, Andrew Dunn

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