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Interestingly, despite the 10-year Treasury yield closing at 1.71% yesterday - its lowest closing value since November 4, 2016 - authorized participants and ETF investors were net redeemers of taxable bond ETFs at negative $5.7 billion, with the second-largest net redemption occurring in our government-Treasury macro-group at negative $1.6 billion, keep in mind that normally there is an inverse relationship between yield and price. The average government-Treasury ETF posted a 1.69% return for the fund-flows week ended August 7, 2019.
Despite plus-side equity returns, both fund investors and ETF investors were net redeemers of equity assets, redeeming a net $8.4 billion for the week, shrugging off progress in the U.S.-China trade talks, a nice start to the Q2 earnings season, and general agreement on the U.S. budget and ceiling, investors showed constraint after learning that Iran had seized a British oil tanker in the Strait of Hormuz, increasing geopolitical concerns.
So if one removes those from the picture, it was a fairly tame week, with the risk-off trade really being the net flows into money market funds, that said, we did see authorized participants being net redeemers of equity ETFs to the tune of $3.2 billion, which is their third weekly redemption in four, while being net purchasers of fixed income ETFs for the third consecutive week, this week injecting $1.1 billion.
While investors were keeping a keen eye on the FOMC (Federal Open Market Committee) meeting, which concluded on Wednesday on a more hawkish note than some anticipated, taxable-fixed income mutual funds took in small amounts of net new money - $348 million-plus, with ETF investors ... withdrawing $700 million, interestingly, though, both investors types were net purchasers of municipal bond funds, injecting $877 million into conventional open-end funds and $314 million for ETFs, respectively.
Despite the S&P 500 setting three record closes during the fund-flows week, investors remained on the equity sidelines after learning about disappointing Q1 revenue growth from stalwart Alphabet, there was a split once again between mom-and-pop investors and authorized participants. Equity mutual funds witnessed outflows of $5.5 billion, while equity ETFs took in $3.7 billion during the fund flows week.
The Federal Reserve's dovish tone in its March meeting minutes along with tame wage growth numbers and news that the IMF lowered its outlook for global economic growth to 3.3% for 2019 were boons for longer-dated bond securities, investors were betting that neither the Fed nor other central banks were likely to hike rates anytime soon.
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