US bond ETFs across the spectrum saw outflows leading to a sell-off in this space. In particular, the iShares Investment Grade LQD ETF, the second biggest credit ETF in the US saw outflows of over $7.4bn in six weeks. According to Bloomberg data, this is the worst ever streak of outflows. The Bloomberg-Barclays SPDR HY ETF also saw $10bn of outflows last week, the biggest weekly outflows since February 2020. The recent outflows in LQD are more than half of the $14.9bn inflows it saw in 2020.With inflation expectations building up, fiscal package on the cards and Treasury yields on the rise, short interest as a percentage of outstanding shares on the 20Y Treasury bond ETF TLT is at a three-year high. Inflation protection funds saw inflows of $660mn in the week bringing YTD inflows to $5.4bn. “With the increase in Treasury yields, we’ve had a very poor period of total returns in investment-grade credit and government bonds”, said Michael Contopoulos, director of fixed income and PM at Richard Bernstein Advisors. Similarly Michael Kelly of PineBridge Investments said, “We’ve been reminded that that policy mix is shifting and so should portfolios. They are just way overexposed to the bond market.”

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