Relentless rise of yields attracts new inflows — but leaves long-dated bondholders nursing losses
Investors have been flocking to fixed income exchange traded funds to scoop up higher yields this year, despite a broad sell-off in bonds, as markets brace for interest rates staying higher for longer. Fixed income ETFs listed across the US and Europe attracted a record $235bn of net inflows in the first three quarters of this year, according to data compiled by BlackRock, up from $169bn in the same period last year and $222bn in the first three quarters of 2021.
Products that own debt with short-dated maturities have attracted the lion’s share of these flows. In the US, the yields of such ETFs have been higher than their longer-dated counterparts, as investors have been pricing in that interest rates will start to fall next year. “Because short-term rates have been much higher than longer-term rates it makes sense that investors have focused on one-to-three month ETFs,” says Rohan Reddy, director of research at fund manager Global X.
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