By Chris Dieterich and Carolyn Cui
Tuesday's selloff in the bond market coincided with massive
withdrawals from U.S. fixed-income exchange-traded funds.
Some $6.2 billion poured out of bond ETFs on Tuesday, equal to
roughly 2.5% of the $240 billion bond ETF market, according to
research and analysis firm ETF.com.
In contrast, some $1.9 billion flowed into U.S. stock funds
Tuesday, representing 0.2% of total assets.
The shift came as investors reacted to cooling tensions over the
Ukraine crisis, reversing flight-to-safety buying in investments
such as U.S. Treasurys and gold.
The massive redemptions, mostly from funds holding U.S.
government debt, exerted some selling pressure in the $11.8
trillion Treasury market in Tuesday afternoon trading, traders
said.
Prices for the benchmark 10-year Treasury notes took a nose
dive, driving the yield up 8.4 basis points--the biggest one-day
yield increase in more than three months. The 10-year note finished
the day at a yield of 2.69%.
Investors often watch short-term ETF money flows for signs of
shifting conviction, though some traders said Tuesday's ETF moves
may have been more of an example of how one particularly large
player can dominate the money trail.
Multiple traders said Tuesday's exodus from bond ETFs was tied
to the monthly rebalance of Good Harbor Financial, which appeared
to be in the market selling bond ETFs and buying stock ETFs.
Paul Ingersoll, Chicago-based Good Harbor's chief executive
officer, didn't return requests for comment.
As reported last month in The Wall Street Journal, Good Harbor's
main U.S. strategy can shift from 100% bonds into 100% stocks in
one day. Good Harbor usually trades on the first day of each month,
but in March it appears to have been in the market on the month's
second day.
Good Harbor has a history of trading both the iShares 1-3 Year
Treasury Bond ETF and the iShares 3-7 Year Treasury Bond ETF and
confirmed last month that it had moved all of its roughly $11
billion under advisement into bond ETFs.
On Tuesday, traders and market evidence suggest that Good Harbor
was selling its bondholdings for shares of stock ETFs tied to the
S&P 500 and the Russell 2000.
Most of Tuesday's one-day bond ETF flows were concentrated in
the iShares 1-3 Year Treasury Bond ETF and the iShares 3-7 Year
Treasury Bond, which each had withdrawals of more than $3
billion.
Tuesday was the largest single-day outflow ever for BlackRock
Inc.'s iShare's fixed-income ETFs, a spokeswoman said.
Tuesday's outflow from bond ETFs marked a quick reversal of the
record inflows the sector had in February. According to Credit
Suisse, U.S. bond ETFs had a net inflow of nearly $17 billion last
month, an all-time high.
The one-day $6.2 billion exodus compares to net inflows of $14.6
billion into bond ETFs over the past 12 months.
Write to Chris Dieterich at chris.dieterich@wsj.com and Carolyn
Cui at carolyn.cui@wsj.com