Traders are spreading out risk and making huge trades as they prepare for the Federal Reserve’s policy meeting Wednesday.
One investor bought 6.8 million shares worth $335 million of the iShares Core Total USD Bond Market ETF, or IUSB, on Monday morning.
The fund tracks a broad index of U.S.-denominated bonds, from government to corporate debt, with maturities across the curve. The trade pushed IUSB’s turnover to the highest ever, and resulted in the fund’s largest inflow since Oct. 31.
While it’s a near unanimous view that the Fed will hold rates steady, markets are unsure about the outlook, meaning attention will zero in on the Fed’s dot plot, economic projections and details surrounding the balance sheet roll off. But with markets mostly sanguine since the pivot a few months ago, the Fed risks surprising investors.
“Looks like one big investor was trying to spread out their duration risk, just in case the Fed does anything to surprise markets,” said Mohit Bajaj, director of ETFs at WallachBeth Capital in Jersey City, New Jersey.
J.P. Morgan’s latest client survey, released Tuesday, showed clients -- and particularly active ones, such as market makers and hedge funds -- shifting from short positions to a neutral stance in Treasuries.
Traders are now buying bond funds with exposures to every duration of the yield curve, data compiled by Bloomberg show. In the beginning of the year, investors were pouring cash into intermediate- and long-term Treasury exposure following the Fed’s initial dovish pivot. Now, funds tracking everything from ultra-short to longer-term duration are seeing fresh inflows, as all duration categories saw inflows last week.