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ETF News And Commentary

Eric Dutram

ETF Trading Report: Bond ETFs in Focus to End the Week

TFI SHV

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American stocks finished the week on a solid note although they still were down for the week, as Bernanke helped to once again reignite hopes for more stimulus. This came out in a letter to Darrell Issa of California, the chairman of the House Oversight and Government Reform Committee, in which Chairman Bernanke wrote that ‘There is scope for further action by the Federal Reserve to ease financial conditions and strengthen the recovery’.

This was enough for many market participants to buy stocks, as the Nasdaq added about half a percent, the S&P 500 rose by 0.7% and the Dow gained just over 100 points, or 0.8%. Gains were pretty widespread throughout the market, although there were some losers in the electronic retailer, steel, and copper mining segments during Friday trading (read Three Defensive ETFs for A Bear Market).

Instead, the markets were led higher by strength in the telecom, biotech, and pharma spaces, while consumer goods, basic materials and financials all trended higher as well. Some of the standouts in these markets were Verizon with a 2.2% gain and Eli Lilly with a 3.4% jump in Friday trading.

This positive trading came despite a modest uptick in the value of the dollar against global currencies, as the greenback strengthened against most of the European currencies and was more or less flat against the resource ones to close out the week. The Treasury market was less interesting, as the U.S. benchmark rate added just one basis point while European counterparts were pretty much flat as well in Friday’s session.

Commodity trading also ended the week on a sour note, as a stronger dollar and weakness in the headline commodities helped to send the sector into the red overall. All the energy products were lower while similar moves were seen in the soft commodity market, livestock, and base metals. Instead, soybeans, cocoa, and coffee were among the few winners on the day, temporarily bucking the trend in the space (see Hard Times in Soft Commodity ETFs).

In ETF trading, investors saw light volume in many of the equity products, although it wasn’t as bad as one might expect for a Friday in August. Trading was instead focused in on the bond market, while commodities and international ETFs also saw respectable trading levels for Friday’s session.

In particular, ETF investors saw an outsized trading day for the iShares Barclays Short Treasury Bond Fund (SHV - ETF report). The product never really moves very much in terms of performance, but it did see an enormous volume increase as more than 3.2 million shares moved hands, well above the 260,000 daily share average (see Comprehensive Guide to Money Market ETFs).

Certainly, some investors are seeking to park their cash in these exchange-traded vehicles instead of putting their money in money market funds, but other factors seem to be at work as well. Other short-term bond ETFs didn’t see the same level of interest, so it appears as though SHV is just the preferred choice for uncertain short-term investors to stash capital before they figure out where to risk it next.

Another bond ETF which was a big mover in terms of volume today was the SPDR Nuveen Barclays Capital Muni Bond Fund (TFI - ETF report). This product usually does about 200,000 shares in a normal session but saw volume exceed the 1.29 million share mark today (also read Don’t Forget About These Impressive Muni Bond ETFs).

Much like in the short-term bond space, ETF investors didn’t see a similar level of interest in other muni bond ETFs, suggesting that short-term traders preferred to gain their exposure to the segment via TFI instead of some of the other funds in the segment. Furthermore, the product may be attracting some momentum-focused investors, as TFI is within 1% of its 52 week high, although it did trend a bit lower in today’s session.

(see more in the Zacks ETF Center)

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