Fixed-Income Inflows Surge in 2023, BlackRock Says

Inflows into bond funds have surged globally as yields reach new highs this year, according to BlackRock.  

Over $235 billion entered global fixed-income exchange-traded products in the first three quarters of 2023, a 38% increase from this time last year in 2022, when $170 billion flowed into global bond ETFs.  

“Since the Great Yield Reset kicked off in 2022, we’ve seen the return of bonds for income; in 2023, the notion of bonds as ballast,” analysts wrote in BlackRock’s forward-looking fourth-quarter report.

As the Federal Reserve has hiked interest rates to combat persistent inflation in the U.S., yields have soared this year. The yield on the 10-year U.S. Treasury note reached over 4% at the end of September this year, compared with about 1% in September 2021.  

“As we reach the peak in DM (developed market) central bank hiking cycles, we expect to see more strategic fixed income reallocations come through to lock in current decade-high yields,” Vasiliki Pachatouridi, head of iShares fixed-income product strategy, said in a statement.  

Fixed-Income ETFs See Record Inflows 

The iShares 20+ Year Treasury Bond (TLT) continues to see record inflows despite its poor performance. The fund has attracted $17 billion in net flows this year, the third among all exchange-traded funds. Yet the fund is down nearly 13% in 2023 year to date. Many investors are buying the fund with the hope that yields are peaking, and therefore positioning themselves for an eventual pullback in interest rates.   

Yet not all bond funds are seeing positive reception from investors. High-yield so called “junk bonds” have bled billion as investors fear high yields could push defaults by lower-rated bond issuers. The largest high-yield bond fund, the $12 billion iShares iBoxx $ High Yield Corporate Bond ETF (HYG) saw $1.5 billion in outflows last week. The fund also saw $10 billion in trading volume in a single day on Oct. 4, its biggest trading day since it launched in 2007.  

Contact Lucy Brewster at [email protected].