(Bloomberg)—Last week’s plunge in interest rates was a boon for the biggest real estate exchange-traded fund.
The largest fund tracking real estate investment trusts, the Vanguard Real Estate ETF, or VNQ, took in $427 million during the week ended July 6, its biggest weekly inflow since January 2017, as the yield on 10-year Treasuries dropped four basis points to 2.82 percent. The move was particularly notable because it was a four-day market week with the July 4 Independence Day holiday in the U.S. The inflows continued on Monday, with another $115 million pouring into the ETF.
REITs are highly interest-rate sensitive investments that are more attractive in falling environments because of their high yields. As 10-year Treasuries climbed from 2.4 percent in January to more than 3 percent in April and May, investors fled real estate, pulling more than $1.5 billion from the $32 billion VNQ over the first five months of the year. But with yields tumbling from 3.1 percent to 2.8 percent in six
“Longer-term trends are very much tied to rates and specifically the 10-year treasury yield,” Bloomberg Intelligence Analyst Jeffrey Langbaum said. “Right now, the investor view is that the 10-year is sitting comfortably below 3 percent and REITs can do OK in that type of environment.”
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