The fixed income world has been struggling over the past couple
of months on the Fed's taper talks and the growing investor
appetite for rising equity markets which has resulted in rising
However, this trend seems to be reversing as the Fed refrained from
withdrawing the stimulus, keeping the current bond buying program
intact. This surprise move by the Fed breathed life into the
depressed bond market, sending yields lower. Yields on 10-year
Treasury notes are now hovering around 2.6%, down from 3% reached
in early September (read:
3 ETF Winners from the 'No Taper' Shocker
As such, bond ETFs experienced the biggest inflows in five months,
according to the data from
of America Merrill Lynch
. Total bond funds accumulated net $4.5 billion in the week (ending
September 25) immediately following the 'no taper' announcement.
High yield bonds led the pack, followed by emerging market bonds.
Bond inflows have begun raising bond prices as many investors are
now buying bonds in order to take advantage from the falling yield.
Further, the looming concerns on the government shutdown and the
debt ceiling are compelling investors to enter the bond market.
Below, we have highlighted the three bond ETFs with highest inflows
in the past few trading session following the Fed 'zero taper':
iShares iBoxx $ High Yield Corporate Bond ETF (
This is the largest and one of the most widely-traded funds in the
high yield bond space with AUM of over $15.2 billion and average
daily volume of just under five million shares. The product has
accumulated about $495 million in assets in the past few trading
sessions while charging 50 bps in fees per year from investors.
The fund tracks the iBoxx $ Liquid High Yield Index and holds 854
securities in the basket. About 95% of the product's holdings
mature in less than 10 years, giving HYG an effective duration of
4.24 years and average maturity of 4.83 years. In terms of credit
quality, the fund focuses on higher quality non-investment grade
bonds, allocating just 35% of the portfolio to bonds rated 'B' or
The ETF is up over 2% in the year-to-date time frame and has a
30-day SEC yield of 5.33% (see:
all the High Yield Bond ETFs here
iShares 20+ Year Treasury Bond ETF (
This product provides exposure to the long-term Treasury bond
market by tracking the Barclays Capital U.S. 20+ Year Treasury Bond
Index and holds 20 securities (read:
Time to Buy Treasury Bond ETFs?
The fund sees inflows of roughly $364 million in the week following
the Fed taper hold, propelling the asset base to $3.22 billion. The
ETF charges 0.15% in expenses while it trades in solid volume of
more than nine million shares per day.
The product targets the long end of the yield curve with maturity
of greater than 20 years. The average maturity comes in 27.45 years
and effective duration is 16.39 years.
The fund focuses on the top credit rating bonds (AA+ and higher).
TLT lost 10.93% year-to-date but added 2% in the past two weeks.
However, the fund sports a 30-Day SEC yield of 3.67%.
PowerShares Senior Loan ETF (
This ETF tracks the S&P/LSTA U.S. Leveraged Loan 100 Index
which acts as a benchmark for the largest institutional leveraged
loans based on market weightings, spreads and interest payments.
The fund has gathered nearly $321 million alone within a week
following the no taper shocker and total AUM comes to $5.8 billion.
The product holds 129 securities in the basket with the vast
majority maturing between one and 10 years. With the average days
to reset being just over 15, interest rate risk is minimal. Though
senior loans account for a hefty 89% of the assets, high yield
securities also make up for the remaining portion in the basket
Senior Loan ETFs: The Best Bet for Rising
BKLN is quite expensive, charging 66 bps a year in annual fees but
sees good average daily trading volume of 3.1 million shares. The
ETF is up 2.30% so far this year and has a 4.15% 30-Day SEC yield.
Investors seeking a bond investment are still keeping a close eye
on the movement of these funds due to the uncertainty over
government shutdown and the upcoming debt-ceiling debacle. If the
debt limit is not raised within the deadline, then it could lead to
credit defaults which could really rock the bond market.
Either way, the above funds have been winners (so-far) in the
post-Fed 'no taper' environment, and thus could be barometers for
the fixed income world in the short term. Look for these to be
among the most impacted by both the Fed minutes release and the
next Fed meeting, as more bond market uncertainty may definitely
boost these funds to close out the year.
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PWRSH-SNR LN PR (BKLN): ETF Research Reports
ISHARS-IBX HYCB (HYG): ETF Research Reports
ISHARS-20+YTB (TLT): ETF Research Reports
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