'T-bill and chill' trade sees big influx from individual investors

By Joy Wiltermuth

Retail inflows into a popular T-bill ETF just hit a record

Move over Netflix.

The "T-bill and chill" trade looks like it's gathering more steam with individual investors, according to Vanda Research.

The roughly $38.6 billion SPDR Bloomberg 1-3 Month T-Bill ETF BIL just raked in more than $40 million in retail funds on Nov. 1, the biggest one-day influx since Vanda began tracking the data in the beginning of 2014.

The ETF tracks 1-month BX:TMUBMUSD01M and 3-month BX:TMUBMUSD03M Treasury bills, where yields have shot up with the Federal Reserve's increases to its short-term policy rate, currently in a 5.25% to 5.5% range, a 22-year high.

"BIL was not the only ETF experiencing large inflows, however," the Vanda Research team wrote Thursday, in a weekly note. They also pointed to the battered $41.2 billion iShares 20+ Year Treasury Bond ETF, TLT which "continues to see outsized net buying from the retail community" as well as the $34.6 billion iShares National Muni Bond ETF MUB and the $17.4 billion iShares 0-3 Month Treasury Bond ETF SGOV, which has an ultra-short duration.

All four ETFs gained on Thursday, even as the Dow Jones Industrial Average DJIA shot up 1.7% and the S&P 500 index SPX posted a 1.9% gain, its best day in about six months. Stocks rallied as investors appeared more optimistic that the Fed might be done raising rates in this cycle.

"Clearly, income-seeking individual investors are taking advantage of the new high-rate regime, which had been missing from the investment landscape since the pre-GFC years," Marco Iachini and the Vanda team wrote.

And it hasn't been only retail investors flocking to short-term bond funds.

See: Short-term bonds dominate fixed-income ETF flows again in October -- with a single fund getting outsize portion of investors' money

Hedge-fund billionaire Ray Dalio in September said cash is "temporarily" good. Other heavy hitters, including DoubleLine Capital's Jeffrey Gundlach, also have been touting short-term Treasurys at 5% yields in recent months.

However, Gundlach on Wednesday told CNBC that he has grown more worried about the $33.6 trillion national debt and about a potential looming recession, which could spark layoffs and rate cuts.

The Vanda team said higher bond yields mean "the bar for equities' role in a retail portfolio has shifted higher," but also that the "first test will come about when markets start to price in Fed rate cuts more aggressively."

-Joy Wiltermuth

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11-04-23 1037ET

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