U.S. Aggregate Bond ETF Hit by Largest One-Day Outflow on Record

(Bloomberg) -- Investors appear to be paring exposure to U.S. bonds as selloff pressure endures in the world's largest debt market.

The biggest fixed-income exchange-traded fund -- the iShares Core U.S. Aggregate Bond ETF, ticker AGG -- was hit by a record $798 million outflow Monday, the largest one-day withdrawal since its September 2003 inception.

Expectations that President Donald Trump's tough talk on tariffs would fail to spur strongly protectionist outcomes fed risk appetite during Monday's trading, sending 10-year Treasury yields toward 2.90 percent.

Not everyone shares the conviction that the retreat in U.S. debt will continue, however. Last Monday, investors sank a record $1.5 billion into AGG, helping to bring its year-to-date inflow to $2 billion. The ETF, which tracks the Bloomberg Barclays U.S. Aggregate Bond Index, has lost 2.7 percent so far this year on the heels of the Treasury selloff.

As such, Monday's redemption may reflect re-balancing by a handful of investors based on shifts in their trading models -- opting to use the $54 billion ETF for its liquidity. That suggests bearish signals from Monday's outflow probably shouldn't be over-stated.

“We all know investors are a bit jittery with respect to fixed income right now,” said Eric Balchunas, an ETF analyst for Bloomberg Intelligence. But the outflow may also underscore “AGG's increased usage” among fixed-income investors seeking to rotate portfolios.

To contact the reporter on this story: Sid Verma in London at sverma100@bloomberg.net.

To contact the editors responsible for this story: Samuel Potter at spotter33@bloomberg.net, Eric J. Weiner, Rachel Evans

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