ETFs
US bond ETF issuers anticipate strong flows in higher, longer rate environment
By Suzanne McGee
June 14 (Reuters) – Investors are pouring money into U.S. bond-focused exchange-traded funds, and some in the industry say capital flows could hit records in 2024 if the current pace continues.
U.S. bond ETFs have raked in a net $109 billion this year as of Thursday, according to Morningstar Direct data. Flows into this category could total a record $250 billion this year, breaking the record of $210 billion set in 2020, Morningstar said.
While bond ETFs represent less than 18% of the entire ETF market based on assets under management, they have received 29% of all inflows year-to-date, according to company data.
“Bond ETFs are punching above their weight,” said Bryan Armour, an ETF analyst at Morningstar.
Bond yields have soared in recent years as the Federal Reserve has raised rates to combat soaring inflation, increasing the appeal of bond funds to income-seeking investors. The central bank earlier this week reiterated its cautious stance on reducing borrowing costs until there is greater evidence that inflation is slowing.
Some industry players believe investors could further increase their holdings of bond ETFs if the Fed appears to be moving closer to easing monetary policy.
“Our view is that there is a wall of money that could be moving very soon” in fixed income ETFs, said Stephen Laipply, global co-head of iShares fixed income ETFs at BlackRock, during of a bond investing conference in Boston on Thursday.
Market participants have invested a net $14.91 billion in bond ETFs so far this month, representing 45% of all ETF inflows, according to Morningstar. That compares to $26.9 billion, or 31% of all May inflows, and a monthly average of $17.1 billion over the past three years. (Reporting by Suzanne McGee; Editing by Cynthia Osterman)
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