Retail Traders Have Fallen in Love With Bonds: Morning Brief

(Yahoo!Finance) - When Fed Chair Jay Powell settles in for his semi-annual testimony to the Senate Banking Committee today, investors will be looking for confirmation that the central bank is going to keep raising interest rates for the next several meetings to fight inflation.

Besides the ongoing debate about whether the Fed’s actions are going to send the U.S. economy into recession and stocks into a tailspin, there’s been one other important side effect: the bond market is the hottest it’s been in years.

That’s newly true not just for institutional investors, but for retail traders as well. That’s because online trading of Treasuries is accessible at a critical mass for the first time with rates at these levels. It's never been easier to buy, be it directly via the Treasury Department, from the discount brokerages, or through ETFs.

The repricing of rate expectations this year has sent yields on many Treasury notes and bonds to their highest in 15 years, with the 2-year, 10-year (TNX), and 30-year all yielding around 4%.

It’s been a huge shift for fixed income.

Besides institutional investors salivating over government and corporate debt, retail traders are so keen they've repeatedly crashed the TreasuryDirect website, which provides a conduit to Treasuries and I bonds. (The latter is an inflation-protected instrument that has both a fixed rate and one that changes with inflation).

“For pretty much the entire decade, leading up to this year, when people asked about retail and fixed income, I could just simply say, ‘no one really cares.’ The past year, that has significantly changed,” Shawn Cruz, Head Trading Strategist at TD Ameritrade, told Yahoo Finance.

Sales of Treasury bills – those with maturities of one year or less – through TreasuryDirect were $12.0 billion in January, a record. Before last August, that number hadn’t cracked $5 billion. Net sales of I bonds were $4.2 billion in January, after spiking to $6.8 billion last October.

Salim Ramji, Global Head of iShares and Index Investments at BlackRock, was enthusiastic about fixed income when he recently spoke to Yahoo Finance:

“It’s a great time for investors to look for yield, but they don’t have to take the kind of risk that they might have two, three, four years ago, because you can get 4% yields in Treasuries. You can get 5% yields in investment grade, even at the front end.”

BlackRock, as the largest provider of ETFs by assets, has benefited from the boom. Thus far in 2023, investors have poured $9.9 billion into U.S. iShares fixed income ETFs. And not all investors are going long; the firm’s most popular instrument in February in the category was the iShares Short Treasury Bond ETF (SHV).

How long will the party last? Even if the Fed raises interest rates at its next three meetings, some strategists have called for a longer period of higher inflation and higher interest rates, an end to the so-called “Great Moderation.”

BlackRock predicts that fixed income ETF assets under management will reach $5 trillion by 2030. As Ramji said, “Having rates as low as they were for as long as they were was kind of the aberration. I think we’re resetting back now to a much more normal fixed income environment, and the great thing for investors, as a result, is they can use it to generate income, and so for retirees or people looking at their wealth portfolios, they’re able to generate good, long-term income from long-term investments like Treasuries or investment grade.”

In other words, for a lot of retail investors right now, boring is beautiful.

What to Watch Today


  • Wholesale Inventories, January

  • Federal Reserve Chair Jerome Powell testifies before Senate Banking Committee


  • Dick's Sporting Goods (DKS); Casey's General (CASY); CrowdStrike (CRWD); Manchester United (MANU); Sea Limited (SE); Stitch Fix (SFIX); Thor Industries (THO)

By Julie Hyman · Anchor

This article first appeared in the Morning Brief.


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