Assets Pour Into Bond ETFs Ahead of Likely Rate Cuts

Led by LQD and AGG, bond ETF inflows have reached more than $18 billion this month.

Wealth Management Editor
Reviewed by: Staff
Edited by: Staff

Assets have been flooding into fixed income ETFs during January, which likely reflects a stronger economy, falling inflation and a Federal Reserve nodding toward lower interest rates. 

Inflows into the overall bond ETF category have reached more than $18 billion since the start of the year, including more than $4.1 billion into the $35.8 billion iShares iBoxx USD Investment Grade Corporate Bond ETF (LQD)

Other fixed income funds leading the inflows include the $100.1 billion iShares Core U.S. Aggregate Bond ETF (AGG), with $473.7 million worth of inflows, and the $46.6 billion Vanguard Intermediate-Term Corporate Bond ETF (VCIT), which has taken in $2.1 billion this year. 

Flooding Into Bond ETFs 

“Annual rebalancing could certainly be playing a role as the large surplus of cash held by retail investors comes back into the bond market as rates potentially fall,” said Chris Shuba, founder and chief executive of Helios

“Looking ahead to upcoming Fed decisions, it’s expected that they will start cutting rates in March and this should give investors even more confidence,” he added. “Another thing that creates a high probability of lower rates in the short term is the combination of falling inflation and an inverted yield curve, confirming the attractiveness of bonds versus cash.” 

The strong stock market performance last year is viewed as a driver behind the fixed income funds' inflows, as financial advisors proceed with annual rebalancing of client accounts. 

As Shuba suggested, Fed interest rate cuts will also put some money in motion as money market yields and cash equivalent strategies that currently pay savers around 5% will start to fall as soon as the Fed trims the overnight rate. 

So far, the rush into fixed income ETFs has included corporate and government debt, but according to a Jan. 22 note by BMO Capital Markets, January is on pace to become the busiest month ever for corporate debt issuance. 

“Fixed income ETFs are off to a strong year in terms of flows; the $18 billion that's gone into those funds represents nearly two-thirds of all ETF inflows so far this year,” said senior ETF analyst Sumit Roy

“Investors are keen to buy bonds with Treasury yields still above 4%, especially since the Fed is expected to begin cutting rates later this year,” he added.  

Contact Jeff Benjamin at [email protected] and find him on X at @BenjiWriter   

Jeff Benjamin is the wealth management editor at, responsible for coverage related to the financial planning industry. This includes writing, hosting podcasts, webinars, video interviews and presenting at in-person events.

Jeff is a veteran journalist with more than 30 years’ experience covering the financial markets. He has won more than two dozen national and regional awards for his reporting. He most recently worked as a senior columnist at InvestmentNews where he wrote about investment products and strategies, as well as the broader financial planning industry. Prior to that, Jeff worked as an analyst at Cerulli Associates where he researched and wrote reports on the alternative investments industry. Jeff also worked as a money management reporter at Dow Jones Newswires, where he covered the mutual fund industry.

Based in North Carolina, Jeff is a former Marine and has a bachelor’s degree in journalism from Central Michigan University.