ETF Trading Report: 3-7 Year Bond, Small Caps In Focus

Although markets were weak on Thursday, they rebounded nicely to close out the week as investors shrugged off a host of bank downgrades and an ECB promise to ease loan collateral for banks. Overall, the Dow rose by 0.5% while the broader indexes saw larger gains with the S&P 500 adding 0.7% and the Nasdaq jumping by 1.2% in the session.

Top performing sectors on the day came in the oil market, health care, and banking, led by strong performances in the business service segment and the independent oil & gas producers. On the downside, oil equipment companies along with utilities and industrials were weak, led by modest slumps in copper miners, machinery makers, and most of the railroads (see Three Low Beta Sector ETFs).

Currency markets on the other hand were flat, as the dollar index retreated by a few cents as the dollar lost a bit against the euro, but gained a tad against both the yen and the Australian dollar. Meanwhile, bond trading was mostly flat, although yields did rise in the longer part of the curve, pushing the 10 year up to a 1.67% rate to close out the week.

In commodities, oil rebounded in Friday trading as both Brent and WTI crude added more than 2.5% on the day. Gold and the rest of the metals market were mixed, while softs also saw choppy trading for the most part. Seemingly the only exception to this was in the sugar market as the sweet commodity plunged 5% in Friday’s action.

ETF trading was a typical light Friday session as many of the top products saw volume that was below historical averages. Activity was especially sparse in the financial ETF market while the Asia-Pacific space also saw fewer-than-average shares change hands. On the other hand, energy products, hedge fund ETFs, and some of the global sector ETFs saw an outsized level of interest during Friday’s session.

In particular, investors saw a higher level of interest in the iShares Barclays 3-7 Year Treasury Bond ETF ( IEI - ETF report ) . This product usually does about 300,000 shares in a normal day but spiked to just under 940,000 shares to close out the week (see Are The Fundamental Bond ETFs Better Fixed Income Picks?).

This boost in volume came as bonds declined pretty much across the board, although relatively low duration securities like those in IEI didn’t lose very much at all on the session. Instead, the product finished the day down just 0.1% and finished the week lower by 0.3%.

Another area that was in focus on the day was the global small cap space, best represented by the SPDR S&P International Small Cap ETF ( GWX - ETF report ) . This product rose by about 1.2% on the session and saw volume that was about six times the daily average (read Guide to Small Cap Emerging Market ETFs).

This large boost in volume was primarily due to a massive block trade which accounted for much of the day’s volume, nearly two-thirds in fact. Beyond this, investors also saw a similar performance in the iShares MSCI EAFE Small Cap Index ( SCZ - ETF report ) as this product traded well more than its daily average for shares as well.

Clearly, some investors are expecting an interesting week in the small cap market as well as the general EAFE zone heading into next week. Surprisingly, the volume increase didn’t carry over into large caps, suggesting that small caps could be more in focus heading into the last week of June.

(See more on ETFs at the Zacks ETF Center)