Long Treasury ETF posts record inflow as Fed taper approaches

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The bond bulls are back. Investors poured a record $1.69 billion into the iShares 20+ year Treasury Bond ETF (TLT) last week, the most among U.S.-listed funds across asset classes, even as yields rose as the Federal Reserve prepares to shrink its $4.5 trillion balance sheet.

The $9.9 billion ETF has received over half its year-to-date $4.36 billion inflow over the past few weeks alone, having taken in $768 million in the week that ended Sept. 8.

Renewed bets that President Donald Trump may have the legislative clout to enact his policy agenda may have triggered some investors to redouble exposures to riskier assets, with the iShares product offering a liquid offset, said Dave Lutz, head of ETF trading at JonesTrading Institutional Services.

"This all started right when Trump started wooing Democrats," the Annapolis, Maryland-based analyst said. "Maybe this is a rush to U.S. assets."

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The iShares ETF, which is more vulnerable to price swings than its shorter-dated peer, has returned 8.3% so far this year. The S&P 500 Index has risen 13%, reaching a record high Sept. 15.

To Peter Tchir, head macro strategist at Brean Capital, last week’s inflow is more evidence of the ever-popular strategy to hedge stocks by snapping up government bonds.

"Investors want to own stocks and their hedge is to buy long-dated bonds — a simple implementation of ‘risk parity’ strategies," he said.

That raises the prospect of outsize losses once equities and Treasuries cease to rally in tandem, he added.

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