The Biggest Haul Since 2020 Attracted $2.5 Billion To A Cash-Like ETF

The turbulent equity markets and the high bond yields have resulted in high demand for cash back.

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Trade Algo has reported that nearly $2.5 billion has been invested in the $23 billion iShares Short Treasury Bond ETF (ticker SHV) over the past week. That's the largest weekly influx for SHV, which has bonds maturing within one year or less, since the height of the pandemic in March 2020, when SHV held bonds maturing within one year or less.

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With short-dated Treasury bill yields hovering at multidecade highs, cash is once again enticing investors in the aftermath of record demand for cash in 2022. There has been a repricing of expectations in recent weeks due to stubbornly high inflation and the Federal Reserve's insistence on squashing it, resulting in stocks and bonds both being roiled in response. Investors who are looking for a safe haven to wait out the volatility will find an attractive place to do so with the safe haven appeal of cash-like positions coupled with reliable returns, according to Citi Global Wealth Management's Kristen Bitterly.

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“Whenever that six-month T-bill crosses that 5% threshold, our number one question is, "Why wouldn't I sit this out and hang out in T-bills?"?“ Bitterly, Citi's head of North American investments, told Trade Algo on Friday. “There's no need to stretch in terms of yield, you can take advantage of those short-duration T-bills if you don't want to go into high yield.”

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Despite the worst performance of 2023 for the S&P 500 last week, cash-like ETFs were in high demand. There was a record $1.8 billion inflow into SPDR Bloomberg 1-3 Month T-Bill ETFs (BIL) and a record $1.2 billion into iShares 0-3 Month Treasury Bond ETFs (SGOV), while SHV’s haul was the most of any fund.

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At present, six-month Treasury bills yield about 5%, the highest since 2007, compared to the S&P 500's earnings yield of about 5.3%. This is the slimmest advantage for stocks since 2001. Meanwhile, investment-grade bonds offer an average yield of about 5.5% — the smallest gap between the two asset classes on record.

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Considering the strength of the growth data, Peter Chatwell, Mizuho International's head of global macro strategies trading, does not think inflation upside surprises will diminish soon. As a result of further hawkish rate repricings, the short end of the curve will look even more attractive as a safe haven for income.