Investors are selling U.S. government bond exchange-traded funds at the fastest pace in 14 months as the Federal Reserve prepares to raise interest rates.
They withdrew $4.1 billion from U.S. fixed-income funds in November, the most since September 2014, according to data compiled by Bloomberg. The iShares 1-3 Year Treasury Bond ETF had the biggest outflow, at $1.5 billion. Short-term Treasuries are losing appeal because they tend to track what the Fed does with its benchmark, the target for overnight lending between banks.
While Fed officials have stressed they will increase rates at a gradual pace, the withdrawals reflect concern the world’s biggest bond market is vulnerable as policy makers push borrowing costs higher for the first time in almost a decade. Treasuries have fallen 1.1 percent over the past month, the biggest loss among 26 bond markets tracked by Bloomberg and the European Federation of Financial Analysts Societies.
“People are a little bit nervous,” said Roger Bridges, chief global strategist for interest rates and currencies in Sydney at Nikko Asset Management Australia, which oversees $15.2 billion. “I could see rates going up as we go into December, but I don’t really see a massive selloff.”
The benchmark U.S. 10-year note yield was little changed at 2.23 percent as of 10:27 a.m. in Tokyo, according to Bloomberg Bond Trader data. The price of the 2.25 percent security due in November 2025 was 100 7/32.
The probability the Fed will increase its benchmark by its Dec. 15-16 meeting is 72 percent, according to futures data compiled by Bloomberg. The calculation is based on the assumption the effective fed funds rate will average 0.375 percent after liftoff, compared with the current range of zero to 0.25 percent.
Policy makers crafted their most recent statement in October to stress it may become appropriate to raise the benchmark in December, and they largely agreed the pace of increases would be slow, minutes of the meeting showed.
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