While such funds make up a small portion of the $28 trillion Treasury market, the exodus shows investors have become increasingly hesitant about long-term U.S. debt, said Miguel Laranjeiro, investment director for municipal debt at Aberdeen Asset Management.
“Usually, that’s because of fiscal policy rather than monetary policy, especially on the long end,” he told Fortune.
Still, he’s optimistic about what proposed regulatory changes could do for the market. Other fixed-income experts, meanwhile, warned not to look too far into the data, which can be volatile based on the timing of redemptions by various institutional investors.
“Near-term fund flows tell us very little other than validating near-term investor sentiment,” Bill Merz, head of capital markets research at U.S. Bank Asset Management, said in a statement to Fortune.
Long-term rates have been on a largely slow and steady decline this past month, however. Recent inflation readings have come in relatively cool, perhaps convincing investors they don’t need as much compensation for the risk of surging prices eating into their returns.
Recent volatility has JoAnne Bianco, senior investment strategist at BondBloxx Investment Management, advising clients to avoid long-dated government debt, like 20- and 30-year Treasuries, all together.
“You’re not seeing the long end—the ultra-long end—work as the safe haven that it might have in the past,” she told Fortune.
Currently, insurance companies and pension funds, who have obligations to pay investors over long periods of time, are among the few “natural investors” in these types of securities, Laranjeiro said.
Such changes would not be without precedent, as the Fed also exempted Treasuries and bank reserves from the calculation of so-called supplementary leverage ratio—which curbs the amount of borrowed funds lenders can use to make investments—during the pandemic.
Thomas Urano, co-chief investment officer at Sage Advisory, agreed that boosting domestic demand for U.S. debt could offset concerns about the market’s ability to absorb increased issuance from the Treasury.
“I think that’s what the bond market and the investor community [are] kind of pinning their hopes on,” he told Fortune.
And if this change can help make fixed income boring again, investors might come crawling back.
