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A $31 Billion Credit ETF Hits Lowest Since 2010 as Outflows Grow

·1 min read

(Bloomberg) -- The Federal Reserve’s campaign to quell inflation is crushing credit as well.

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The $31.3 billion iShares iBoxx $ Investment Grade Corporate Bond ETF (ticker LQD) slid to its lowest level since May 2010, when a flash crash shaved 1,000 points off the Dow Jones Industrial Average. The drop follows data overnight that showed a nearly $800 million outflow for the fund tracking US dollar-denominated high-quality bonds, which is poised for for its biggest weekly cash exodus since June.

The Fed’s interest rate hikes have ricocheted across asset classes triggering a selloff that has engulfed high-grade corporate bonds.

To some market watchers, the declines are starting to look overdone.

“LQD is trading 10% below its 200-day, that’s only reserved for panic type moves -- financial crisis and Covid,” said Todd Sohn, ETF strategist at Strategas Securities. “This move higher in yields is a global phenomenon, perhaps best shown by the evaporation in negative-yielding debt. You have to wonder how much more pain can go on here though.”

The ETF has lost 19% year-to-date on a total return basis, Bloomberg data show. The fund dropped another 0.7% on Friday after Thursday’s 1.4% fall. The ETF is still sitting on net inflows of $533 million year-to-date, despite a $2.6 billion exodus in the past month alone.

The volatility is hitting riskier debt as well. Over $600 million exited the $11 billion iShares iBoxx High Yield Corporate Bond ETF (HYG) on Thursday, bringing year-to-date outflows to roughly $8 billion.

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