Long-Duration Bond ETF Sees Record Outflows Even as Fund Rallies

(Bloomberg) -- Investors are abandoning an exchange-traded fund tracking long-term U.S. Treasury bonds even as it rallies and are piling into shorter-duration ETFs as benchmark yields continue their downward trek.

The $9.9 billion iShares 20+ Year Treasury Bond ETF, known by its ticker TLT, is on pace for its worst month of outflows on record. Investors have pulled more than $1.47 billion out of TLT in March, already topping the record $1.37 billion in outflows seen in November 2017. Ironically, the fund is one of the top-performing fixed income ETFs this month, with its shares rising 4.6 percent, according to Bloomberg data.

“It’s because of the move in 10-year yields dripping below the 2.4 percent level,” said Mohit Bajaj, director of ETFs at WallachBeth Capital. “Investors would rather not take the interest-rate risk on the 10-year if they are getting better yield on short duration ETFs. Less risk, more reward.”

Treasuries have rallied since the Federal Reserve signaled last week it was done raising rates this year and yields turned negative on many European sovereign securities. A portion of the Treasury yield curve inverted shortly after the Fed meeting -- for the first time since 2007 -- a sign that has preceded past recessions. Benchmark 10-year U.S. yields fell as low as 2.35 percent Wednesday.

Investors seeking higher yields have shifted money into shorter-duration funds, said Bajaj. The iShares 1-3 Year Treasury Bond ETF, or SHY, has taken in more than $1.46 billion this month, while the Vanguard Short-Term Corporate Bond ETF, VCSH, took in around $158 million in the same period.

--With assistance from Sarah Ponczek, Tom Lagerman and Carolina Wilson.

To contact the reporter on this story: Vildana Hajric in New York at vhajric1@bloomberg.net

To contact the editors responsible for this story: Jeremy Herron at jherron8@bloomberg.net, Dave Liedtka, Brendan Walsh

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