(Bloomberg) - The world’s largest provider of exchange-traded funds is bracing for a record year of trading in its flagship European credit fund as uncertainty about the timing and severity of central bank tightening pushes investors into more liquid instruments.
BlackRock’s iShares euro corporate bond fund has already seen a daily average of more than 300 million euros ($341 million) change hands this year, according to data compiled by Bloomberg. While it’s early for annual comparisons, that would be an all-time high.
Investors are piling into easier-to-trade products such as ETFs and credit-default swaps as individual corporate bonds become more difficult to buy and sell. Cash markets dried up this month as traders repriced risk after central banks signaled plans to raise interest rates and end bond-buying programs faster than expected.
“If we take anything from the month of February, we are on track to break any previous records when it comes to trading volumes,” Vasiliki Pachatouridi, head of EMEA iShares Fixed Income Strategy, said in an interview. Investors are using ETFs more in times of volatility for “taking tactical bets,” she said.
A chorus of ECB governing council members have voiced hawkish opinions since the latest monetary policy meeting on Feb. 3. On Friday, Peter Kazimir backed an end to quantitative easing in August and Bostjan Vasle said he favored a faster adjustment.
BlackRock’s IEAC ETF saw its first billion-euro day in almost two years after the European Central Bank’s hawkish turn earlier this month. Meanwhile, trading volumes in Europe’s high-grade CDS index approached levels similar to the U.S. for the first time in a risk-off period over the past decade.
To be sure, ETF volumes are driven by both buying and selling. More than 750 million euros flowed out of IEAC this year, leaving it worth about 10.1 billion euros, according to data compiled by Bloomberg. Money has been shifting from benchmark credit ETFs globally into funds investing in floating-rate notes or short-dated bonds, which are more immune to rising rates.
But with more events coming up on the central bank calendar, including an informal ECB meeting on Feb. 24, there’s a high chance of more high-volume days ahead.
“There’s no consensus” on the path of monetary policy, said Pachatouridi. “And that’s the kind of volatility a lot of active managers are looking for to make money and find opportunities.”
By Tasos Vossos
