By Chris Dieterich 
 

NEW YORK--As yields on U.S. Treasury bonds were hitting recent lows last week, investors were pumping a record amount of money into U.S. Treasury bond ETFs.

Treasury bond ETFs soaked up a net $1.4 billion in the most recent week ended May 8, the most ever, according to Lipper Inc. Overall, taxable-bond ETFs drew in $4.5 billion in the week, also a record, according to Lipper.

"The general trend has been investors becoming more comfortable that interest rates are not going to rise immediately, and looking for yield in more interest-rate sensitive investments," said Matthew Tucker, head of fixed-income investment strategy at iShares.

There may be some buyers' remorse, however. The yield on the U.S. Treasury 10-year note rose to 1.76% on Wednesday, from 1.63% on May 2. On Friday, it had climbed to 1.90%.

But for the week ended May 8, buyers were flocking to Treasury bond ETFs.

The iShares Barclays 3-7 Year Treasury Bond Fund (IEI) collected $1.5 billion, fully one-third of last week's total bond flows. Meanwhile, the ProShares Ultra 7-10 Year Treasury ETF (UST) took in $1.1 billion.

Robust flows meant that the $3.8 billion iShares fund nearly doubled in size last week. The $1.1 billion ProShares 7-10 year fund, which promises double the daily moves in its underlying bonds, gained the entirety of its current assets in the week ended May 8.

Meanwhile, funds flowed out of short-duration government bond funds. The iShares Barclays 1-3 Year Treasury Bond Fund (SHY) saw outflows of $68 million, while the iShares 1-3 Month (BIL) saw outflows of $55 million.

"People have given up the goat on earning nothing in money markets and shorter-duration bonds, so why not step up the curve if the Fed isn't making a move?" said Robert Smith, chief investment officer of Austin, Texas-based Sage Advisory Services. His firm holds a large position in the iShares Barclays 7-10 Year Treasury Bond (IEF) in its core fixed-income strategy.

In addition to the Fed, Mr. Smith said, rising demand for Treasury bonds was likely the result of overseas investors moving out of Japanese bonds as the yen continues its historic slide. In that light, even low-yielding U.S. debt is relatively more appealing than Japanese government bonds.

"You've had the flood of Japanese money going all over the world, and some of those fund flows may have found their way into Treasury ETFs," he said.

Much of the past week's flows came in big blocks, rather than as a slow and steady stream, data show.

"We have seen a number of significant-sized trades that indicate institutions--it's not clear which ones--are doing some of this buying," Mr. Tucker said.

The PowerShares fund climbed more than $800 million in assets overnight on May 2, most of the week's $1.1 billion inflow, according to data from IndexUniverse.

The move to longer-duration bonds is a turnaround from earlier this year, whien ETF investors also piled into lower-yielding shorter-term bonds with the least sensitivity to higher interest rates: some $2.2 billion flowed into the Vanguard Short-Term Bond Fund (BSV) in the first quarter, among the top inflow recipients for all ETFs.

But concerns are ebbing for a Fed rate cut in the immediate future, and investors are now piling into bonds with longer durations and higher yields.

"In the first quarter, investors really pulled away from Treasurys with the concern they would feel the impact of rising rates. But in the second quarter, some of those fears have abated," Mr. Tucker said.

-Write to Chris Dieterich at christopher.dieterich@dowjones.com;