(Bloomberg) - Investors are cashing out of one of the biggest exchange-traded funds that target corporate bonds, a sector that’s trailing the broader fixed-income market before a widely expected Federal Reserve interest-rate hike next month.
The $34 billion iShares iBoxx $ Investment Grade Corporate Bond ETF (ticker LQD) saw its fifth consecutive day of outflows Tuesday, the longest streak since February-March 2020, when the pandemic started battering the global economy, data compiled by Bloomberg show. Traders favor the ETF as a highly liquid tool for wagering on corporate debt.
The $856 million that investors yanked over the last five days is only around a third of the sum withdrawn in the 2020 streak. But the outflows reflect worsening sentiment toward investment-grade bonds -- which tend to be longer duration and thus are more sensitive to rising interest rates -- as the Fed turns more hawkish.
“The biggest pain trade we are seeing across markets is longer-duration, higher-quality bonds,” said Matt Miskin, co-chief investment strategist at John Hancock Investment Management. The outflows appear to reflect concern over the effect of rising rates, rather than worries about corporate credit, he said.
Corporate bonds have lost 4.7% in 2022, compared with 3.3% for the broader U.S. debt market, Bloomberg index data show. Investors pulled a record $8.4 billion from corporate bond ETFs in January, after adding to them for much of the last two years, according to Bloomberg Intelligence.
For Peter Tchir, head of macro strategy at Academy Securities, the selling may have created a buying opportunity. Investors may have sold the fund as they watched its performance sour last month, he said.
“That’s often a sign of when I kind of step in and reverse this, because they weren’t ahead of it, they’re being reactionary.”
By Elaine Chen
