Investors looking for a safe place to hide are shoveling money into ultra-short bond exchange-traded funds as Donald Trump’s economic policies stoke recessionary concerns and a stock-market rout.
The cohort has taken in more than $16 billion so far this year, led by products such as the iShares 0-3 Month Treasury Bond ETF (ticker SGOV), which has seen more than $7 billion come in. The fund took in $1.4 billion last week alone, its largest inflow on record, data compiled by Bloomberg show. And investors have added $3.2 billion to the SPDR Bloomberg 1-3 Month T-Bill ETF (BIL), about half of which came in last week in what is its biggest inflow since November 2023.
Trump’s evolving tariff war on its top trading partners, federal-workforce layoffs and softening economic data are helping to dent sentiment and fueling a stock-market selloff that’s erased all of the S&P 500 Index gains since the U.S. President got elected.
Yields on policy-sensitive two-year Treasuries have dropped sharply in recent days as bond traders increasingly signal that the US economy is about to sputter out. Investors are now betting that the Federal Reserve will resume cutting interest rates by June, if not sooner, to bolster the economy. During such times of turmoil, investors tend to turn to less volatile and lower-risk assets like fast-maturing bonds.
“Recession risk is elevated,” driving investors into funds such as SGOV and BIL, said Dennis DeBusschere, 22V Research’s president and chief market strategist. “You buy them ahead of potential Fed cuts.”
Trump’s tariff plans — which have undergone multiple on-again, off-again rounds — are whipsawing markets and stirring angst about the economy. At the start of the month, a model from JPMorgan Chase & Co. Showed that the market-implied probability of an economic downturn had climbed to 31%, while a similar model from Goldman Sachs Group Inc. Also suggested recession risk is edging up.
Other funds focused on ultra-short-term debt have also taken in massive amounts of cash. The JPMorgan Ultra-Short Income ETF (JPST) has seen inflows of $3 billion this year.
Inflows into bond ETFs with short durations tend to accelerate during periods of stock-market turbulence, according to an analysis by Bloomberg Intelligence. Data going back to 2013 show that flows into the category during down months for the S&P 500 averaged $2.7 billion, compared with $440 million in months when it gained. The flows can be seen as a “useful measure of market sentiment” given that ETF investors tend to react quickly to market-moving events, wrote BI’s Athanasios Psarofagis in a recent note.