(Bloomberg) -- In the grip of the worst day for stocks in two months, traders in the hyper-liquid world of ETFs ditched equities and corporate bonds and headed for the safety of government debt as yields broke out anew.
Money managers on Tuesday pulled billions of dollars from major exchange-traded funds tracking stocks and credit as hot economic data spurs fresh fears that the Federal Reserve will be forced to ramp up its tightening campaign. A $1 billion outflow hit the-now $7.6 billion SPDR Bloomberg High Yield Bond ETF (JNK) in the largest withdrawal since 2020, according to overnight data compiled by Bloomberg.
At the same time, around $908 million was added to the $5.3 billion SPDR Portfolio Short Term Treasury ETF (SPTS), the biggest addition in three years. It was a slice of the well-over $2 billion that poured into funds tracking short-dated US government bonds. Money managers also sank fresh cash into a long-duration debt strategy that may benefit in an economic downturn, with the iShares 20+ Year Treasury Bond ETF (TLT) reeling in the most cash in a month.
The shift came as Treasury yields surged Tuesday amid growing conviction that the Fed is nowhere near wrapping up its war against inflation, let alone pivoting away from rate hikes. That creates a double incentive to turn to government debt: To benefit from rising yields while limiting potential damage from more economically exposed assets, which could suffer as higher rates hamper growth.
While a single day's data can be a fickle signal in the ETF world, the flows underscore the fragility of investor sentiment surrounding a new-year rally that saw the S&P 500 at one point up about 9% in defiance of most Wall Street expectations. Over 90% of stocks in America's benchmark gauge fell Tuesday as the index sank 2%.
The following table shows some of the biggest inflows and outflows on Tuesday:
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