The iShares iBoxx $ IG Corporate Bond ETF aka LQD saw its worst ever month of outflows with investors pulling $3.6bn out of the fund. The ETF, which holds 2,420 securities and has an effective duration of 9.44 years, is highly sensitive to changes in benchmark Treasury yields which have shot up ~70bp in Q1 to 1.71%. Most of the ETF’s holdings are focused on the 20+ years segment with the highest weightage in the banking sector (23.7%) and 51% of the fund’s value in the BBB space. “It’s probably part and parcel with Treasury rates moving higher… We still like credit due to the higher income, but a lot less than we did last year, when spreads were wider” said Sameer Samana, Wells Fargo Investment Institute’s senior global market strategist. IG has taken a beating in Q1 2021, both in the US and globally too – only 17% of IG bonds saw a positive price return, worse than even Q1 2020 when assets sold-off across the board in late March 2020 leading to 24% of IG bonds delivering positive price returns. HY on the other hand fared better with 39% delivering a positive return in Q1 2021, far more than the 2% bonds that traded in the green in Q1 2020.
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