Cardan Capital Partners is pleased that reporters from Bloomberg contacted us to discuss market dynamics today. For a full look at the report, click here.
“Just before 1 p.m. in New York on Wednesday, the Pimco 25+ Year Zero Coupon U.S. Treasury Index ETF saw a $138 million block trade, representing more than 60 percent of the outstanding shares, according to data compiled by Bloomberg. It was a 30-fold increase over the average daily trading volume in a fund that’s structured to let investors wager on an asset class that does best when rates are falling.
“The heavy buying in the ETF continued on Thursday, with two trades worth a combined $57 million coming before 11 a.m., Bloomberg data show.
“With the Fed dialing back expectations of multiple rate increases this year and little sign of inflation, investors are searching for yield in longer-dated bonds. The longer the duration — a measure of price sensitivity to changes in interest rates — the more the debt has rallied. Zero-coupon bonds have become increasingly popular this year because they have a longer duration than similar-maturity notes as holders only get paid when it’s due instead of receiving interest payments throughout its life.”
“Using ETFs is increasingly popular among institutional investors who want stock market liquidity for assets that are hard to trade. Almost $131 million of new shares were created on Wednesday.
“However, some institutional managers are becoming leery about the fund’s rapid rise and whether it meets their needs at this price. Matt Papazian, chief investment officer at Cardan Capital Partners, uses the ETF to offset his firm’s equity position, but moved some of his hedge to another product at the beginning of the year — and may cut further.
“’We want to have exposure to these things at all times, we’re still there,’ said Papazian, whose Denver-based firm manages around $530 million. ‘At this rate, we would probably reduce it again because the valuation is slowly but surely being eroded by this rapid increase.’”