There’s A Risk-Off Trade Afoot, You Just Didn’t Notice…

You wouldn’t know it to scan the headlines (or the tweets), but investors and traders are exercising a bit of caution as surging virus cases in the US threaten to force state and local officials to re-close businesses and reinstate mobility restrictions.

A fews days back, in “To Hell And Back Again (What The Flows Are Saying)“, I flagged the second consecutive week of outflows from junk funds which, on Lipper’s data, bled $5.5 billion during the week ended July 1, the fourth-largest weekly exodus on record.

The outflow came after a blockbuster quarter for junk, as voracious demand from investors emboldened borrowers, who tapped the primary market for a record haul in June.

That’s thanks in no small part to the Fed, whose backstop for the corporate credit market encouraged investors to plow money into the asset class ahead of the official launch of the central bank’s two bond-buying facilities.

For those interested to know what fate befell the two most popular exchange-traded high yield products last week, the answer is that JNK saw a $746 million outflow, while HYG watched $609 million flee. All told, $2.6 billion left junk ETFs over five days.

Meanwhile, Treasury ETFs raked in cash, with BlackRock’s 7-10 Year product getting more than $2 billion, for its biggest weekly inflow in nearly 18 months.

This rotation from junk to quality was also reflected in last week’s huge haul for investment grade funds on both Lipper and EPFR’s data (see the linked post above for details).

You’re reminded that Jerome Powell owns both JNK and HYG in the Fed’s secondary corporate credit facility. Now that the Fed is buying individual corporate bonds, dealers may not be inclined to hold as much inventory in the ETFs.

Perhaps the most impressive flow trend for an individual product comes courtesy of State Street’s popular SPDR Gold Shares ETF, better known by its ticker, GLD.

Gold has been a standout in 2020 thanks to a perfect storm of negative real rates, risk-off sentiment, and fiscal/monetary largesse which feeds the debasement narrative. GLD has seen 15 straight weeks of inflows.

Who knows, maybe the Fed will start buying GLD soon.

I jest — but not entirely.


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3 thoughts on “There’s A Risk-Off Trade Afoot, You Just Didn’t Notice…

  1. I’m under the impression that the Russian and Chinese governments are buying all the gold mined in their countries and have been for a while and buying gold on the world markets. The Russians need it to prop up the ruble. The Chinese to be able to say the Yuan is backed by something of value?? Anyone know how much gold the US government has?? I haven’t seen a figure on this for some time now.

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