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Investors dump US$3b of Treasury ETFs as haven appeal ebbs

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Money managers are dumping Treasury exchange-traded funds as a revival in equity and commodity prices curbs demand for the relative safety of US debt.

[SINGAPORE] Money managers are dumping Treasury exchange-traded funds as a revival in equity and commodity prices curbs demand for the relative safety of US debt.

Treasury ETF net redemptions have reached US$2.9 billion so far in April, on top of US$4.8 billion pulled in March, according to data compiled by Bloomberg. Net purchases of US stock funds listed on exchanges have climbed to US$8.5 billion this month and totaled US$16.7 billion in March, the data show.

US government securities are headed for their biggest weekly loss in more than a month as data from China showed exports jumped and industrial output increased. Oil prices rose before crude producers discuss freezing output this weekend. The International Monetary Fund is preparing to meet in Washington to focus on global economic growth. The MSCI All Country World Index of shares rose to the highest this year on Thursday.

"There's an unwinding of safety assets to risk assets," said Kazuaki Oh'E, the head of fixed income at CIBC World Markets Japan Inc in Tokyo. "The stock market hitting a record for the year" fueled the shift, he said.

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Treasuries rose on Friday, with the benchmark 10-year note yield falling two basis points, or 0.02 percentage point, to 1.78 per cent as of 9:52 am in London, according to Bloomberg Bond Trader data. The price of the 1.625 per cent securities due in February 2026 rose 6/32, or US$1.88 per US$1,000 face amount, to 98 21/32. The Bloomberg US Treasury Bond Index has fallen 0.3 per cent this week through Thursday, headed for the biggest drop since the period ended March 11.

"There are a lot of mixed signals dictating the directionality of Treasuries at present," said Matthew Cairns, a strategist at Rabobank International in London. "The stabilization in oil in particular is likely behind this fall on the week" in Treasuries, he said.

Mr Cairns sees US yields rising as Rabobank's house view is "the Fed will ultimately have enough evidence on the table for two hikes this year, with the first beginning in June." Major crude producers are meeting this weekend in Doha. The IMF's spring gathering takes place April 15-17 in Washington.

The iShares 1-3 Year Treasury Bond ETF had the biggest outflows among listed debt funds this month, shrinking by US$765 million, data compiled by Bloomberg show. It has returned 0.9 per cent this year, including reinvested dividends.

The SPDR S&P 500 ETF Trust has attracted the most money among stock ETFs, growing by US$1.71 billion. It has gained 2.6 per cent in 2016.

BLOOMBERG

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