U.S. Markets closed

Investors Continue Flocking to Short-Term Bond ETFs

This article was originally published on ETFTrends.com.

Rising interest rates coupled with concerns about deteriorating credit quality in the corporate bond market are among the factors prompting investors to continue embracing short-term bond exchange traded funds.

That theme is benefiting ETFs such as the SPDR Barclays 1-3 Month T-Bill (BIL) and the JPMorgan Ultra-Short Income ETF (CBOE:JPST). BIL tracks the Bloomberg Barclays 1-3 Month U.S. Treasury Bill Index and “seeks to provide exposure to zero coupon U.S. Treasury securities that have a remaining maturity of 1-3 months,” according to State Street.

BIL “saw its second-largest cash infusion in at least the last five years. Investors poured around $581 million into BIL on Friday, just shy of its record, which it reached at the end of last month,” reports Bloomberg.

JPST is an actively managed ETF that aims to deliver a significant percentage of the returns offered by the Bloomberg Barclays Aggregate Bond Index with a lower duration profile. JPST's duration is just 0.53 years.

Reasons For The Enthusiasm

The ability to generate returns in short-dated fixed income ETFs has increased. As a result, money has been flowing into short term treasuries and cash type products to gain interest from investors who are hedging against market risk. Weakness in the corporate bond market is another reason bond investors are embracing ETFs like BIL and JPST.

“More investors are growing cautious about the corporate debt market, with heavily debt-laden companies like General Electric Co., Ford Motor Co. and Campbell Soup Co. flashing warning signs as global growth slows and interest rates rise,” according to Bloomberg.

Roughly half of U.S. corporate bonds that currently carry investment-grade ratings have a BBB rating of some kind, indicating those issues are perilously close to junk territory. Widening credit spreads would further pressure corporate bonds, potentially increasing the allure of safer destinations like BIL and JPST.

The $3.70 billion JPST can hold corporate securities, asset-backed securities, mortgage-backed and mortgage-related securities, and high quality money market instruments such as commercial paper and certificates of deposit.

For more information on the fixed-income markets, visit our bond ETFs category.