Investors Load Up On Bond ETFs As Markets Remain Volatile

As global equity markets have seen increased turbulence to start 2016, investors have been running to safe-haven destinations. That includes exchange-traded funds holding U.S. government bonds. Professional investors are expected to boost their usage of fixed-income ETFs with nearly two-thirds already owning bond ETFs, according to a recent Greenwich Associates study.

Year-to-date, five of the top 10 asset gathering ETFs are fixed income funds, and each member of that quintet is a U.S. government bond fund – led by iShares Barclays 20+ Yr Treas.Bond (ETF) TLT. Barely more than a month ago, longer-dated government bond ETFs, such as TLT, looked like they could be in trouble after the Federal Reserve boosted interest rates for the first time in nearly a decade.

Related Link: A Different Spin On The Traditional Bond ETF

The Fed And Bond ETFs

“Continuing worries about the impact of ongoing economic volatility has seen the bond market on both sides of the Atlantic move into full risk off mode over the last fortnight,” said Markit in a recent note. “The risk perceptions in corporate bonds, as gauged by the benchmark spread in euro and dollar investment grade bonds, had held steady near the levels seen at the start of the year as late as January 10, but fears around the health of the global economy have seen that measure of market uncertainty surge to levels not seen since 2012.”

TLT has added $1.66 billion in new assets this year, while investors have poured $1.32 billion into the iShares Barclays 7-10 Year Treasry Bnd Fd IEF. IEF has a 30-day SEC yield of 1.88 percent and an effective duration of almost 7.6 years.

“According to Markit’s ETP service, Sovereign bond funds listed in Europe and America have seen around $10 billion of inflows so far in January which puts the asset class on track for its best monthly inflow since February 2014,” said Markit.

The iShares Barclays 1-3 Year Treasry Bnd Fd SHY rounds out the top five asset-gathering ETFs to this point in 2016. SHY has hauled in $1.16 billion in new money. No ETF has seen greater inflows than the $2.69 billion added by the iShares Barclays Short Treasury Bond Fnd SHV. SHV has an effective duration of just 0.38 years.

“American investors have proven to be the most eager to ride this trend as the 88 government bond funds listed in the region have taken the lion’s share of inflows after attracting $8.5 billion of new assets. This represents a significant 13 percent of the $62 billion managed by these funds since the start of the year,” added Markit.