Wild Week for Bond Market Spurs Record Trading Frenzy in ETFs

Bill Gross is right: bond ETF activity has been frenzied in the grip of Wall Street turmoil.

The violent selloff in the Treasury market has sent shockwaves through fixed-income funds across the spectrum, spurring a gush of trading in the largest exchange-traded funds, an exodus of cash from high-yield trades and fresh mania across the options market. The iShares iBoxx High Yield Corporate Bond ETF (HYG) alone saw $10 billion of shares change hands Wednesday, the most since its inception 16 years ago.

Gross, co-founder and former chief investment officer at Pacific Investment Management Co. highlighted the recent spikes in volumes in fixed-income ETFs, noting that investors who are “spooked” by recent losses have joined a crowd of bond bears. All that has the potential to exacerbate negative market sentiment.

On the flipside, inflows into some of the world’s largest bond ETFs have also held up amid the losses, suggesting a cohort of money managers may be fighting the hawkish Federal Reserve or are simply seeking to scoop up the highest yields on offer in decades.

Here are some of the notable moves seen in the bond market, as viewed through the lens of ETFs:

Long-Bond Losses

The largest long-dated bond ETF is in the midst of its biggest price drop on record, though flows into the fund haven’t ceased amid the drubbing. The $38 billion iShares 20+ Year Treasury Bond ETF (ticker TLT) has lost 50% from its 2020 all-time high and has slipped more than 3% so far this week, according to data compiled by Bloomberg. But investors have continued to plow money toward it, with the fund seeing $17 billion come in so far this year, putting it on pace for a record annual haul.

TLT is poised for its sixth straight week of losses, shedding 10% over that stretch amid fears the Federal Reserve will keep interest rates higher for longer.

TLT's Record Drawdown