Bond ETFs just hit the $2 trillion mark, could triple by 2030, says BlackRock

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Investors’ appetite for exchange-traded funds that buy bonds has pushed assets to a level that BlackRock sees tripling by 2030.  

Bond ETF assets under management have just crossed the $2 trillion mark globally, according to a spokesperson for BlackRock. “We think assets will actually triple by the end of the decade” to $6 trillion, revised up from an earlier estimate of $5 trillion, said Steve Laipply, global co-head of bond ETFs at BlackRock, by phone.

Bonds have been popular this year.

“Fund investors have spent all of 2023 selling a rising stock market and buying bonds,” wrote Nicholas Colas, co-founder of DataTrek Research in a note emailed Thursday, citing flows for mutual funds and ETFs. “The last 2 weeks have seen something of a shift in fund investor sentiment, with this cohort adding U.S. equity exposure in each period after a long run (all of 2023) of persistently selling this asset class.”

The S&P 500 SPX closed above the 4,500 mark on Thursday for the first time in 15 months, while also ending only 6% from its record close of 4,796.56 set on Jan. 3, 2022, according to Dow Jones Market Data.

U.S.-listed bond ETFs have seen more than $100 billion of inflows this year, with BlackRock’s iShares business representing just under half of that, according to Laipply. Fixed-income investors are attracted to high interest rates not seen in more than a decade after “the great yield reset” last year as inflation surged, he said.

“The top flowing ticker this year for us” is the iShares 20+ Year Treasury Bond ETF TLT, with about $13 billion of inflows through July 11, he said. Within Treasurys, the iShares 7-10 Year Treasury Bond ETF IEF and the iShares U.S. Treasury Bond ETF GOVT, which provides exposure to Treasurys with 1-30 year maturities, captured the next biggest inflows over the same period, according to Laipply.

“It does appear that investors are cognizant of the possibility of a slowdown” in the U.S. economy, he said. But “it may not necessarily mean a hard landing,” said Laipply. “The debate is wide open there.”

Bond ETF flows at BlackRock this year show investors allocating across durations, but not piling broadly into short-duration Treasurys, he said, pointing to $1.1 billion in outflows this year for the iShares 1-3 Year Treasury Bond ETF SHY as of July 11. BlackRock has seen mixed demand for shorter-dated bonds so far in 2023, with the iShares 0-3 Month Treasury Bond ETF attracting inflows, he said. 

“Longer-dated bonds traditionally have served as a good hedge” in a risk-off environment, said Laipply, though 2022 was brutal for both stocks and bonds. 

While both asset classes were broadly pummeled last year as the Federal Reserve battled the highest inflation in decades with higher rates, the ultra-short end of the Treasury market fared relatively well. For example, the iShares 0-3 Month Treasury Bond ETF SGOV posted a total return of 1.6% in 2022, according to FactSet data. 

This year, the fund is up 2.5% through Wednesday on a total return basis, trailing the 2.9% gain for the iShares 20+ Year Treasury Bond ETF but surpassing the 1.7% total return for the iShares U.S. Treasury Bond ETF over the same period.

Investors appear less worried about inflation this year based on industry outflows from ETFs that buy Treasury inflation-protected securities, according to Laipply. That “paints the picture that investors believe inflation has peaked,” he said. 

A report Wednesday from the Bureau of Labor Statistics showed inflation in June rose slightly less than expected, based on data from the consumer-price index. Core inflation, which excludes food and energy prices, had the smallest monthly increase since August 2021, according to the report.

The “CPI report was good news, and recent trends show the U.S. economy has escaped a 1970s-style inflationary spiral,” said DataTrek’s Colas in the firm’s note. 

Read: U.S. stocks rise as bulls get ‘wish’ on inflation report, yet soft landings for Fed are ‘pretty improbable’

Treasury ETFs rose after Wednesday’s CPI report, extending their rally Thursday with bigger gains for funds focused on U.S. government bonds with longer-dated maturities. For example, shares of the iShares 20+ Year Treasury Bond ETF climbed slightly more than 1% on Thursday, while the iShares 1-3 Year Treasury Bond ETF edged up 0.3%, FactSet data show.

As usual, here’s your look at the top- and bottom-performing ETFs over the past week through Wednesday, according to FactSet data.

The good…

…and the bad

New ETFs

• Goldman Sachs Asset Management announced Thursday that it has launched the Goldman Sachs North American Pipelines & Power Equity ETF GPOW.
• DWS said Thursday that it listed three thematic ETFs: the Xtrackers U.S. Green Infrastructure Select Equity ETF UPGR, Xtrackers Semiconductor Select Equity ETF CHPS and Xtrackers Cybersecurity Select Equity ETF PSWD.

• Simplify Asset Management announced July 11 the launch of the Simplify Multi-QIS Alternative ETF QIS, a fund that invests “in a diversified portfolio of third-party quantitative investment strategies across equities, interest rates, commodities, and currencies.”

Weekly ETF reads

• Left behind by the 2023 stock-market rally? Use this type of ETF to play catch-up, says BofA. (MarketWatch)
• Read the Ingredients Before Buying This $25 Billion ETF (The Wall Street Journal)
• Analysis: Partnering with Coinbase could hinder bid for bitcoin ETF approval (Reuters)
• Europe’s first bitcoin ETF set to launch after 12-month delay (Financial Times)
• Greater China investors join global migration to ETFs (Financial Times)
• Schwab’s New High-Yield Bond ETF Is Tied for Cheapest on the Market (Bloomberg)