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The weekly performance of Treasuries and investment-grade bonds

Chanderlekha Nayar

Weekly review: How the US Treasuries and corporate bonds performed (Part 10 of 10)

(Continued from Part 9)

The funds flow

The funds flow is a great way to assess the investor demand in the market. As observed in the chart below, the investors’ demands for the Treasury bills, notes, and bonds were mostly mixed, but investment-grade bonds made a good come back from the previous week. Surprisingly, the much affected emerging market (EEM) ETFs posted an inflow, indicating a bullish investor sentiment for the market. However, over past few weeks, the emerging markets have continued the sell off, with suppressed growth in China and tension prevailing in Ukraine and Russia. China particularly holds a major portion in the emerging market ETFs such as iShares MSCI Emerging Markets ETF (EEM).

Short-term T-bills versus intermediate T-notes

There are many ETFs tracking the most highly liquid treasury markets for their own benchmark. The major short-term ETF is SPDR Barclays 1-3 Month T-bill (BIL) that tracks price and yield performance of one-three-month sector of the U.S. Treasury bill market. Last week, the ETF posted an inflow of $25.2 billion compared to the intermediate T-note ETF (ITE), which posted an outflow of $0.14 million. SPDR Barclays Intermediate Term Treasury (ITE) tracks the investment results that, before fees and expenses, correspond generally to the price and yield performance of an index that tracks the 1-10 year sector of the U.S. Treasury market.

Other two major short-term to mid-term ETFs, iShares 1-3 Year Treasury Bond (SHV) and iShares 1-3 Year Treasury Bond (SHY) showed high investor demand with fund inflows of $42.6 million and $25.1 million, respectively. Both the ETFs’ prices declined with a gain in the intermediate Treasury yields last week. Bond prices and interest rates are inversely correlated. When the interest rate increases, the bond price falls, and the yield (rate of return) increases.

Long-term T-bonds versus investment-grade corporate bonds

The Treasury and investment-grade bonds posted an inflow of 20.5 million and $21.8 million, respectively last week. The iShares Barclays 20+ Year Treasury Bond (TLT) tracks long-term Treasury bonds. The ETF has an expense ratio of 0.15% and is benchmarked to the performance of Barclays Capital U.S. 20+ Year Treasury Bond Index. The ETF recorded a price appreciation last week despite the rise in the U.S. 10-year Treasury yield, which ended the week (March 21) at 2.75%.

The iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD) seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the corporate bond market as defined by the iBoxx $ Liquid Investment Grade Index. Last week, the LQD ETF price was up by 0.07%.

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