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Outflows Show Bond Weakness Sinking in With Investors


In a sign of just how bad things are in the bond market, of the 56 ETFs that hit new 52-week lows on Wednesday, half are bond funds. That is the result of a 10-year Treasury yield that has surged more than 46% in the past three months.

Some investors are getting the message that rising rates are destructive to fixed income portfolios. In just the past month, $3.5 billion has been pulled from U.S. bond ETFs, according to Nick Colas, chief market strategist at ConvergEx. [ETF Flows Reverse as Investors Turn Skittish]

Still, many investors may not realize just how adversely their portfolios are impacted by rising rates. According to a survey by Edward Jones, 63% of Americans don’t know how rising interest rates will impact investment portfolios such as 401(k)s, IRAs and other savings platforms. [Investors Forget How Rising Rates Kill Bonds

In fact, a full 24% say they feel completely in the dark about the potential effects,” Edward Jones said. Understanding how rising rates can punish bond portfolios is critical for ETF investors for myriad reasons, not the least of which is that some of the largest ETFs are bond funds. Of the 20 largest ETFs by assets, five are bond funds. Of those five, only the Vanguard Total Bond Market ETF (BND) saw inflows over the past month.

The iShares Core Total U.S. Bond Market ETF (AGG) and the iShares TIPS Bond ETF (TIP) saw combined outflows of nearly $1 billion over the past four weeks, according to Index Universe data.

Not all bond ETFs have been stung by the outflow bug brought on by rising rates. There is still some appetite for short duration fare as well high-yield bonds. The iShares 1-3 Year Credit Bond ETF (CSJ) , PowerShares Senior Loan Portfolio (BKLN) and the SPDR Barclays Short Term High Yield Bond ETF (SJNK) have attracted new investments over the past four weeks, led by over $546 million flowing to BKLN.

PowerShares Senior Loan Portfolio

ETF Trends editorial team contributed to this post. Tom Lydon’s client own shares of TIP.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.