Investors Show Bond ETFs Love

More than $66 billion has flowed into fixed-income ETFs this year despite rising interest rates.

Reviewed by: Sumit Roy
Edited by: Sumit Roy

Interest rates are climbing, sending fixed-income investors running for the hills. That’s the conclusion you might draw from glancing at October’s flows data, which showed fixed-income ETFs registering their first monthly outflow in three years.

That outflow, totaling $5 billion, came as the benchmark U.S. 10-year Treasury yield jumped to a seven-year high close to 3.26%.

But that’s not the whole story.

Looking at just last month’s flows data paints a bleak picture for fixed-income ETFs this year. But looking at the data for the year as a whole reveals a much more positive situation for the segment.

Year-to-date, through the end of October, a sizable $66.2 billion flowed into fixed-income ETFs—including $56 billion into U.S. fixed-income funds and $10.2 billion into international fixed-income funds—equal to more than 30% of all inflows for U.S.-listed ETFs in 2018.

The haul is even more impressive when considered against the backdrop of a big jump in interest rates to multiyear highs.

Embracing Higher Yields

The data suggest that, rather than running away from higher interest rates, investors are embracing them. Funds holding short-term debt, in particular, have seen their assets balloon.

The iShares Short Treasury Bond ETF (SHV), which holds Treasuries with maturities of one year or less, has nearly doubled its assets this year, taking in a whopping $7.6 billion of new money.

The iShares 1-3 Year Treasury Bond ETF (SHY), the iShares Floating Rate Bond ETF (FLOT), the SPDR Bloomberg Barclays 1-3 Month T-Bill ETF (BIL), the JPMorgan Ultra-Short Income ETF (JPST) and the PIMCO Enhanced Short Maturity Active ETF (MINT) have also seen tremendous success this year, with inflows of more than $3 billion each.

Ticker Fund YTD Inflows ($M) AUM ($)
SHV iShares Short Treasury Bond ETF 7,577 15,592
FLOT iShares Floating Rate Bond ETF 5,218 11,832
EMB iShares JP Morgan USD Emerging Markets Bond ETF 3,800 14,744
SHY iShares 1-3 Year Treasury Bond ETF 3,485 14,699
BIL SPDR Bloomberg Barclays 1-3 Month T-Bill ETF 3,349 5,302
JPST JPMorgan Ultra-Short Income ETF 3,202 3,317
SCHP Schwab US TIPS ETF 3,183 5,859
MINT PIMCO Enhanced Short Maturity Active ETF 3,155 11,200
BNDX Vanguard Total International Bond ETF 2,933 12,101
FLRN SPDR Bloomberg Barclays Investment Grade Floating Rate ETF 2,832 4,501
VMBS Vanguard Mortgage-Backed Securities ETF 2,508 7,134
NEAR iShares Short Maturity Bond ETF 2,067 4,944
AGG iShares Core U.S. Aggregate Bond ETF 2,005 52,688
SCHR Schwab Intermediate-Term US Treasury ETF 1,842 2,953
BSV Vanguard Short-Term Bond ETF 1,746 25,302

Note: Data measures inflows for the year-to-date period through 10/31/18.


By holding short-term debt (or floating-rate bonds, in the case of FLOT), these ETFs minimize interest rate risk, while still allowing investors to capture this year’s higher interest rates. That’s resonated with investors who want to take advantage of the rising rate environment without worrying about whether rates move even higher from here.

Other Factors At Play

In addition to being attracted to higher yields, investors may be parking their cash in short-term bond ETFs for safety. Let’s face it: It’s been a volatile year for the stock market, with three 8% corrections in the S&P 500 in just 10 months.

Short-term bond ETFs are a haven amid this volatility, especially as the outlook for long-term bonds is more uncertain.

Another factor driving demand for these ETFs: the reforms in money market funds that took place two years ago. Beginning in October 2016, the Securities and Exchange Commission said that certain money market funds—mutual funds that hold short-term debt securities—would no longer be allowed to have stable $1 net asset values (NAVs) and would have to convert to floating NAVs based on market prices.

The SEC also said that during times of stress and low liquidity, money market funds would have the ability to charge redemptions fees and temporarily block investors from taking their money out.

Together, these changes to money market funds made them more secure and better able to withstand a financial crisis, but at the expense of some of their coveted features. That may be pushing some former money market fund investors into short-term bond ETFs.

Not Just Short-Term Bonds

While short-term bond ETFs are this year’s biggest flows winners, other fixed-income ETFs are seeing interest too.

Some long-duration bond ETFs—those most sensitive to interest rate movements—are gaining assets. The iShares 20+ Year Treasury Bond ETF (TLT) had inflows of $1.5 billion through the first 10 months of the year.

At the same time, investors are using the distress in emerging markets to pick up bonds in those regions. The iShares JP Morgan USD Emerging Markets Bond ETF (EMB) had inflows of $3.8 billion in the year-to-date period through October, as prices for the fund tumbled to the lowest level since early 2016.

The Schwab U.S. TIPS ETF (SCHP), which holds Treasury inflation-protected securities, has also thrived this year, with inflows of $3.2 billion. With U.S. wages rising at their fastest pace in nine years in October, some investors may be viewing TIPS as a good way to protect against unanticipated inflation.

Corporate Bond ETFs Shunned

As widespread as the interest in fixed-income ETFs has been this year, not all of them are feeling the love. Corporate bond ETFs like the iShares iBoxx USD High Yield Corporate Bond ETF (HYG), the SPDR Bloomberg Barclays High Yield Bond ETF (JNK) and the iShares iBoxx USD Investment Grade Corporate Bond ETF (LQD) have been absolutely shunned.

The trio has outflows of a combined $13 billion already this year, as jittery investors worry about potential defaults when the next economic downturn hits. Just as the stock investors have turned skittish on the back of trade, interest rate and late-cycle worries, so too have corporate bond investors.


Ticker Fund YTD Outflows ($M) AUM ($)
LQD iShares iBoxx $ Investment Grade Corporate Bond ETF -5,204 31,254
JNK SPDR Bloomberg Barclays High Yield Bond ETF -4,793 7,433
HYG iShares iBoxx $ High Yield Corporate Bond ETF -3,034 14,135
BIV Vanguard Intermediate-Term Bond ETF -2,151 12,511
IGIB iShares Intermediate-Term Corporate Bond ETF -1,789 5,673
PFF iShares U.S. Preferred Stock ETF -1,656 15,205
BKLN Invesco Senior Loan ETF -1,259 6,631
IGSB iShares Short-Term Corporate Bond ETF -1,163 10,195
SJNK SPDR Bloomberg Barclays Short Term High Yield Bond ETF -1,153 3,156
PCY Invesco Emerging Markets Sovereign Debt ETF -837 3,713

Note: Data measures outflows for the year-to-date period through 10/31/18.

Email Sumit Roy at [email protected] or follow him on Twitter umitroy2

Sumit Roy is the senior ETF analyst for, where he's worked for 12 years. Before joining the company, Roy was the managing editor and commodities analyst for Hard Assets Investor. He lives in the San Francisco Bay Area, where he enjoys climbing the city’s steep hills, playing pickleball and snowboarding.