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Aug 18, 2016

S3 BLACKLIGHT: U.S. Government Fixed Income ETF Long & Short Flows

ETF’s have become a very popular way to hedge or put on exposure in a sector, asset class or region. There are 69 active ETF’s in the U.S. Government fixed income asset class, but only sixteen have AUM’s over $1 billion and only one has short interest over $1 billion. Following is a recap of the larger US Govt ETF’s by duration. (See Chart 1)

It is interesting to notice that although investors are getting long US treasury exposure via ETF’s throughout the entire duration curve, short sellers are predominantly in the long term end of the curve with $4 out of every $5 shorted via ETF in the 20+ year duration bucket. (See Chart 2)

Long holders have been taking on $5.3 billion more US Govt ETF exposure in 2016, with a slight pullback, slightly over 1%, in the 3rd quarter as the probability of Fed Funds rate change in September increased from 2% on July 1st to 22% today. Short sellers haven’t changed their allocations much either, lowering their short exposure by only 2% in the 3rd quarter.

For more information on the above analysis, please contact:
Ihor Dusaniwsky, Head of Research, S3 Partners, LLC     Ihor.Dusaniwsky@S3Partners.net

The information herein (some of which has been obtained from third party sources without verification) is believed by S3 Partners, LLC ('S3 Partners') to be reliable and accurate. Neither S3 Partners nor any of its affiliates makes any representation as to the accuracy or completeness of the information herein or accepts liability arising from its use. Prior to making any decisions based on the information herein, you should determine, without reliance upon S3 Partners, the economic risks and merits, as well as the legal, tax, accounting and investment consequences, of such decision.

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