Investors Flock to Short-Term Treasury ETFs Amid Market Turmoil

(Bloomberg) -- Investors are racing into exchange-traded funds that track short-term U.S. government debt to hedge against rising interest rates as stocks tumble to the worst month in seven years.

The SPDR Bloomberg Barclays 1-3 Month T-Bill ETF, ticker BIL, had the largest inflow since 2011 on Monday, with $581 million coming in. The fund has attracted more than $1.7 billion this month, putting it on track for the largest monthly inflow since August 2011. Meanwhile, the Goldman Sachs Access Treasury 0-1 Year ETF, or GBIL, has also seen high inflows, with around $110 million coming in since Oct. 22.

The surge of cash comes as the S&P 500 Index has fallen 7 percent in October, putting it on track for its biggest monthly decline since September 2011. As a result, equity investors are turning their eyes to the perceived safety of U.S. government debt. On top of that, fixed-income investors are shortening the duration of their Treasury bets as the Fed continues to raise interest rates.

Investors Flock to Short-Term Treasury ETFs Amid Market Turmoil

“With the weakness in the market, we have seen investors get out of both longer duration fixed-income and equities into BIL as a cash-parking vehicle,” said Mohit Bajaj, director of ETFs at WallachBeth Capital. “They need to remain invested in something, so as a placeholder they invest in BIL.”

Treasuries are increasingly attractive because of their rising returns. The yield on a three-month note is 2.33 percent, compared with the dividend yield on the S&P 500 of 2 percent.

Investors Flock to Short-Term Treasury ETFs Amid Market Turmoil

“The calculus is starting to change on risk sensitivity with Treasury bills at 2 percent,” said Gennadiy Goldberg, strategist at TD Securities in New York. “It’s changing the way investors look at markets.”

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