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Short/Intermediate Government and Treasury ETFs Post Largest Outflow on Record

Published 02/02/2024, 12:49 AM
Updated 07/14/2020, 01:40 PM

During LSEG Lipper’s fund-flows week that ended January 31, 2024, investors were overall net purchasers of fund assets (including both conventional funds and ETFs) for the second week in three, injecting a net $50.1 billion.

Money market funds (+$39.9 billion, +0.10%), taxable bond funds (+$6.4 billion, +1.07%), equity funds (+$3.5 billion, -0.26%), and tax-exempt bond funds (+$1.5 billion, +0.92%) attracted net new capital.

Commodities funds (-$733 million, +1.09%), mixed-assets funds (-$239 million, +0.44%), and alternative investment funds (-$161 million, +0.39%) suffered outflows over the week.

The 10 spot bitcoin ETFs reported net inflows of $261 million—ex-GBTC inflows totaled $1.8 billion.

Index Performance

At the close of LSEG Lipper’s fund-flows week, U.S. broad-based equity indices reported mixed to negative returns—the DJIA (+0.91%) was up, while the Nasdaq (-2.05%), Russell 2000 (-0.74%), and S&P 500 (-0.47%) were all in the red.

Both the Bloomberg Municipal Bond Total Return Index (+0.67%) and Bloomberg U.S. Aggregate Bond Total Return Index (+1.34%) rose over the week.

Overseas indices also traded mixed—DAX (-0.27%), FTSE 100 (+1.21%), Nikkei 225 (+0.72%), S&P/TSX Composite (+0.92%), and Shanghai Composite (-1.34%).

Rates/Yields

Both the 2-year (-3.58%) and 10-year (-5.46%) Treasury yields fell over the course of the week. Although still inverted, the Treasury yield curve continues to normalize.

According to Freddie Mac, the 30-year fixed-rate average (FRM) fell since last week, marking the second weekly decline in the three—the weekly average is currently at 6.63%. The US Dollar Index (DXY, +0.04%) and VIX (+8.43%) both increased over the course of the week.

The CME FedWatch Tool currently has the likelihood of the Federal Reserve cutting interest rates by 25 basis points (bps) at current levels at 38.5%. This tool forecasted a 73.4% possibility of a 25-bps cut one month ago. The next meeting is scheduled for March 20, 2024.

Market Recap

On Thursday, January 25, the Department of Commerce reported that the U.S. economy grew faster than expected during the fourth quarter thanks to strong consumer spending and increased market optimism of a soft landing. Gross domestic product improved at an annualized rate of 3.3% last quarter, following a 4.9% annualized rate in Q3. The Department of Labor published that claims for state unemployment benefits rose to 214,000 over the prior week, marking a 25,000 increase. U.S. broad-based equity markets performed well on the day—the Russell 2000 (+0.71%), DJIA (+0.64%), S&P 500 (+0.53%), and Nasdaq (+0.18%) were all in positive territory. The two-year Treasury yield fell 1.51%.

The calendar week ended Friday, January 26, with the Bureau of Economic Analysis publishing its Personal Income and Outlays report for December. The report showed that personal income increased by $60.0 billion (+0.3%) last month, with disposable personal income (income less personal current taxes) also improving by 0.3%. The personal savings rate fell to 3.7% during the month of December which was the lowest level since December 2022. Equity markets traded mixed on the day—the DJIA (+0.16%) and Russell 2000 (+0.12%) were up, while the S&P 500 (-0.07%) and Nasdaq (-0.36%) were down on the day.

On Monday, January 29, the Federal Reserve Bank of Dallas reported that Texas factory activity contracted in January—the production index fell 17 points to negative 15.4, marking the lowest reading since mid-2020. While current output fell, the future production index rose 10 points to 21.7. Equity markets surged on the day—Russell 2000 (+1.67%), Nasdaq (+1.12%), S&P 500 (+0.76%), and DJIA (+0.59%). The two-year Treasury yield fell 1.12% ahead of the Federal Open Market Committee (FOMC) meeting.

On Tuesday, January 30, the Department of Labor showed that U.S. job openings increased by 101,000 last month, another data point that might suggest the Federal Reserve may keep rates higher for longer. The report also highlighted that there were 1.4 positions for every unemployed person—flat from November. The Conference Board published that its consumer confidence index increased from 108.0 to 114.8, marking the highest reading since December 2021. Consumer inflation expectations for the next year fell to 5.2%, the lowest level since March 2020. U.S. broad-based equity markets traded mixed—DJIA (+0.35%), S&P 500 (-0.06%), Nasdaq (-0.76%), and Russell 2000 (-0.75%).

Our fund-flows week wrapped up Wednesday, January 31, with the Fed announcing it will be keeping rates unchanged with no indication of imminent cuts. Private payroll company ADP reported that companies added 107,000 jobs during the first month of the year. Leisure and hospitality posted the largest increases, with 28,000 new workers. Equity markets fell with Treasury yields plummeting on the day—two- (-3.03%), five- (-3.13%), and 10-year yields (-2.49%) were all down.

Exchange-Traded Equity Funds

Exchange-traded equity funds recorded $10.1 billion in weekly net inflows, marking 16 weeks of inflows over the last 18. The macro-group posted a 0.40% loss on the week, its second week in three realizing a loss.

Large-cap ETFs (+$6.6 billion), developed international markets ETFs (+$1.5 billion) and equity income ETFs (+$1.2 billion) attracted the top inflows among the equity ETF subgroups. Large-cap ETFs has seen five weeks of inflows over the last seven, despite six weeks of losses in the last 10.

Multi-cap ETFs (-$632 million) and small-cap ETFs (-$71 million) suffered the only weekly outflows under equity ETFs. Multi-cap ETFs logged their third straight weekly outflow, while realizing back-to-back weeks of positive returns.

Over the past fund-flows week, the two top equity ETF flow attractors were iShares Core S&P 500 ETF (NYSE:IVV) (IVV, +$3.8 billion) and iShares S&P 500 Value ETF (NYSE:IVE) (IVE, +$3.6 billion).

Meanwhile, the two bottom equity ETFs in terms of weekly outflows were iShares MSCI USA Quality Factor ETF (NYSE:QUAL) (QUAL, -$2.4 billion) and iShares S&P 100 ETF (NYSE:OEF) (OEF, -$2.0 billion).

Exchange-Traded fixed-income Funds

Exchange-traded taxable fixed-income funds observed a $889 million weekly inflow—the macro-group’s sixth straight inflow. fixed-income ETFs reported a return of positive 1.20% on average, its first gain in five weeks.

General domestic taxable fixed-income ETFs (+$3.8 billion), high yield ETFs (+$1.3 billion), and government & Treasury fixed-income ETFs (+$1.1 billion) were the top subgroups under taxable bond ETFs to observe inflows. Over the prior six weeks general domestic taxable fixed-income ETFs have witnessed five weekly inflows but only two weeks of positive returns.

Short/intermediate government & Treasury ETFs (-$5.4 billion) and short/intermediate investment grade ETFs (-$292 million) were the only subgroups to post net outflows. This was the largest weekly outflow for short/intermediate government & Treasury ETFs on record.

Municipal bond ETFs reported a $817 million inflow over the week, marking the largest weekly inflow since week ending November 8, 2023. The subgroup realized a positive 0.71% return—the first gain in four weeks.

iShares Core Total USD Bond Market ETF (NASDAQ:IUSB) (IUSB, +$2.6 billion) and iShares Bitcoin Trust (NASDAQ:IBIT) (IBIT, +$830 million) attracted the largest amounts of weekly net new money for taxable fixed-income ETFs.

On the other hand, US Treasury 3 Month Bill ETF (NASDAQ:TBIL) (TBIL, -$2.8 billion) and Grayscale Bitcoin Trust (NYSE:TFLO) (TFLO, -$1.5 billion) suffered the largest weekly outflows under all taxable fixed-income ETFs.

Conventional Equity Funds

Conventional equity funds (ex-ETFs) witnessed weekly outflows (-$6.6 billion) for the one-hundred-and-third straight week. Conventional equity funds posted a weekly return of negative 0.12%, the second week of losses in three.

Large-cap funds (-$2.7 billion), mid-cap funds (-$1.3 billion), and equity income funds (-$783 million) were the top conventional equity fund subgroups to realize weekly outflows. Large-cap mutual funds saw their ninth consecutive weekly outflow as they realized a loss in four straight weeks.

Developed international market funds (+$224 million) and sector equity conventional funds (+$36 million) were the only subgroups to report weekly inflows. Developed international market funds reported their first inflow in 21 weeks. The subgroup returned a positive 0.46% on the week, marking back-to-back weeks of gains.

Conventional fixed-income Funds

Conventional taxable-fixed-income funds realized a weekly inflow of $5.5 billion—marking their fifth consecutive weekly inflow and largest weekly intake since the week ending January 5, 2022. The macro-group logged a positive 0.97% on average—their first plus-side return in five weeks.

Short/intermediate investment-grade funds (+$3.0 billion), general domestic taxable fixed-income funds (+$1.1 billion), and high-yield funds (+$1.1 billion) were the top subgroups to post inflows on the week. This was the largest weekly inflow from short/intermediate investment-grade funds since week ending June 9, 2021.

Emerging markets debt funds (-$160 million) and short/intermediate Government & Treasury funds (-$11 million) suffered the only outflows among conventional taxable fixed-income subgroups over the trailing week. Emerging markets debt funds have observed 10 straight weekly outflows.

Municipal bond conventional funds (ex-ETFs) returned a positive 0.98% over the fund-flows week, marking the first gain in the last five weeks. The subgroup experienced a $660 million inflow—the fifth straight inflow after ending a twenty-three-week outflow streak.

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