THIS DYNAMIC IS THE ULTIMATE BEAR CASE FOR RISKY ASSETS

The price action in fixed income has driven dramatic shifts in ETF flows over the last week, suggesting that material moves are taking place under the surface. :

  • Government Bond and Credit (largely HY) ETFs posting 3 to 4 z-score outflows
  • Growth and Momentum equity products saw 1 to 2 z-score outflows
  • US equity sector flows also show sensitivity to rates with Utilities and Real Estate positing ~3 z-score outflows, even more than Technology which saw 2 z-score outflows

And, as Morgan Stanley's quantitative derivatives strategist Chris Metli explains in a note to clients, the direction of these flows is not all that surprising – but it’s helpful to put into context the magnitude of the flows. Across all fixed income ETFs, the last week saw the biggest outflows since the taper tantrum.

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