Bond ETF Inflows Trounced Stock Funds in 1Q

Fixed income brought in $40 billion as bank crashes, murky Fed path push investors to cut risk.

Reviewed by: Shubham Saharan
Edited by: Shubham Saharan

Investors piled into fixed income exchange-traded funds in the first quarter as fragility in the banking sector and a cloudy direction from the Federal Reserve on interest rates is pushing investors away from riskier equity ETFs. 

U.S. fixed income ETFs hauled in $39.7 billion, more than five times the $7.2 billion that flowed into U.S. equity funds, Bloomberg data shows. The pace of the move into bonds accelerated from last year, when they brought in $99.2 billion versus $15.1 billion for stocks, according to data.  

Whipsawing markets, bank runs and back-to-back-to-back Federal Reserve interest rate hikes have resulted in investors rebalancing portfolios and shying away from risk. That’s taken its toll on equity flows, said Todd Sohn, ETF strategist at Strategas Securities.  

“I think there's a lack of clarity on the direction. We can go into a recession or they're going to have to continue hiking rates,” he said in an interview with 

Further dampening risk appetite is a perception, after several bank crashes, that the U.S. banking system may be less stable than investors had thought. 

“The curveball is about this event with the banks,” Sohn said. “I think that's scaring a lot of investors too. And I think that's ultimately ending up in the flow data, at least for equities.”  

Fed Fuels Equity Outflows  

The trend of sluggish equity ETF inflows may continue as the Fed evaluates its path forward.  

The central bank raised rates 25 basis points March 22, bringing the federal funds rate to between 4.75% and 5%, the highest level since 2007.  

In the last statement made by the Federal Open Market Committee, participants reinforced their commitment to cutting inflation from the current 6% to its 2% goal, while acknowledging the effect of tightening on markets. Still, it noted that rates may remain more elevated for longer than expected.  

Since the Fed’s first bump in interest rates in the beginning of 2022, just 6% of equity funds have posted a positive return, and half are down at least 10%, Sohn wrote in a note Tuesday. 

Instead, those assets are being used to buy relatively safer bond funds that are consistently yielding over 4%. Among fixed income funds, Treasury bill ETFs, especially those with shorter duration exposures, are taking the spotlight, according to Matt Bartolini, head of SPDR Americas Research at State Street Global Advisors. Government-exposure ETFs are taking in 85% of all the bond flows this quarter. 

“Bond ETFs are punching above their weight,” Bartolini said in a podcast appearance with The ETF Store on Tuesday. “Particularly compared to bonds, the equity risk premium is not really indicating strong returns.”  

For the quarter, the biggest equity ETF is edging out the biggest bond fund with respect to returns: The SPDR S&P 500 ETF Trust (SPY) has gained 3.8% while the Vanguard Total Bond Market ETF (BND) added 2.4%.  


Contact Shubham Saharan at [email protected]         

Shubham Saharan is a markets reporter at Before joining the company, she reported for Bloomberg and the Financial Times. Saharan is a graduate of Barnard College of Columbia University.