The demand for bond ETFs seems to be increasing.
Chris Concannon, the CEO of MarketAxess, stated that there are indications that Treasury ETFs are about to experience significant inflows. He said, “We’re about to see what I’d call [a] bond renaissance,” on CNBC’s “ETF Edge” this week. “The Fed is still taking action, so I would expect bond yields overall to remain relatively high and attractive.”
In late March, the Federal Reserve raised rates by a quarter point, its ninth hike since March 2022. Next Wednesday, Wall Street will get the Fed minutes from the last policy meeting and more clarity on what may come next.
Tom Lydon, the vice-chairman of VettaFi, sees a similar trend. “They’re starting to move back not just into Treasurys, but into corporates and high yields with the idea that we may be able to lock in longer duration and longer payment for those higher rates, [and] with the idea that we’re not going to see higher rates a year from now,” he said.
According to VettaFi’s latest data, international and U.S. fixed-income exchange-traded funds saw about $45 billion in inflows since the beginning of the year. Meanwhile, corporate bond ETFs saw $6 billion in outflows in the first quarter.
Lydon speculates that the renewed interest is due to investors losing faith in traditional 60/40 investment portfolios. “We’ve seen a lot of advisors take a little bit off the table, both in the equity side and the fixed income side,” he said. “So, safety is key until we start to see confidence that the Fed really has some handle on inflation and [there’s] stability in the marketplace.”