S&P 500, Oil, Bond Fund Flows Amid Recovery-Fueled Rise In Yields

Late February’s rise in US Treasury bond yields has had knock-on effects across financial markets. Longer-term yields in other developed countries rose in a similar pattern and equity markets moved to reflect the increasing risk-free rate of return.

The S&P 500 has failed to reclaim the levels above 3,900 set just before the rise in yields triggered an acceleration in market volatility. Wednesday’s weak prints in ISM services activity and ADP employment numbers for February drove the index slightly lower and could continue to pose another headwind to equities, alongside further moves higher in Treasury yields. After some early-week calm, Treasury yields appear to be moving notably higher on Wednesday. The yield on the US 10yr is nearing the 1.50% level again, encroaching on the estimated S&P 500 dividend yield.

SPY, S&P500, SPY Fund Flows, ETF

The SPY ETF, which tracks the S&P 500, has been mixed in the new year. Since January 1, the ETF has seen around $10 billion in net outflows. Market volatility on February 25th saw some dip-buying activity in the ETF following three days of outflows, and the 20-day average of flows continues to trend higher.

Mixed economic data has also threatened the rally in WTI Crude Oil. WTI has boomed in 2021, rising from 48.00 to a high above 63.00 on February 25th. Since then the oil rally has struggled, with the price of WTI Crude falling to consolidate below the 61.00 level. Thursday’s OPEC+ meeting can have a significant impact on the price going forward. Sources suggest that the JMMC made no recommendations on oil output at their Wednesday meeting.

USO, WTI, USO Fund Flows, Crude Oil Price

Despite the strong rise in crude oil prices in 2021, the USO ETF has seen consistent outflows since the beginning of the year. In total, the ETF has seen nearly $1 billion in net outflows since January 1, with very few days of inflows. This discrepancy between oil price movements and ETF-derived sentiment may be driven by profit-taking activities or from expectations that oil prices do not have much more room to climb higher as the world economy still remains far from its pre-pandemic potential.

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