Investors piled into an intermediate-term Treasury ETF at the fastest pace on record last week and shifted away from short-term bonds amid fading hopes that the Federal Reserve will cut interest rates deeply this year.
The Vanguard Intermediate-Term Treasury ETF (ticker VGIT), which tracks U.S. government bonds that mature within the next three to 10 years, took in $1.7 billion last week. That’s the biggest weekly inflow going back to its inception in 2009.
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The shift came as hotter-than-anticipated inflation data and signs of continued strength in the economy drove Treasury yields to year-to-date highs last week. Traders are now pricing in about three quarter-point rate cuts this year, roughly half what they were expecting late in 2023.
The shift has increased demand for bonds in the intermediate part of the yield curve, which are less exposed to interest-rate risks than longer-maturity securities but still carry relatively high yields.
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“The intermediate part of the curve has gotten more interesting as, in part, the rates complex reacted to a lower likelihood of the Fed cutting so soon,” said Lindsay Rosner, head of multi-sector fixed-income investing at Goldman Sachs Asset Management. “Additionally, there appeared to be large ETF shifts likely related to asset allocation rebalancings.”
Other flows among ETFs showed the shifts. Last week, the Schwab Short-Term U.S. Treasury ETF (SCHO) saw outflows of $508 million while the Vanguard Short-Term Treasury ETF lost $397 million. Meanwhile, the iShares 20+ Year Treasury Bond ETF (TLT) saw an outflow of roughly $284 million last week.
