Bond ETFs Emerge as a New Year Investor Favorite

Bond ETFs Emerge as a New Year Investor Favorite

U.S. fixed income funds absorbed $9.4 billion last week.

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Reviewed by: Shubham Saharan
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Edited by: Shubham Saharan

Investors are flocking to bond exchange-traded funds as recession bells ring.  

ETFs netted $9.3 billion in inflows during the first trading week of 2023, jumping 58% from the $5.9 billion the industry posted the week prior, according to ETF.com data.  

U.S. fixed income products pulled in $9.4 billion, soaring from the $1.5 billion seen in the week ending Dec. 30. Meanwhile, equity funds recorded a $2.7 billion loss, a reversal from the inflows of the same amount in the previous week. 

All but one of the 10 best-performing U.S.-traded ETFs in the week ending Jan. 6 were fixed income funds, according to ETF.com data. Of those, the top three asset-gatherers were the iShares Core U.S. Aggregate Bond ETF (AGG), the iShares iBoxx USD High Yield Corporate Bond ETF (HYG) and the iShares 0-3 Month Treasury Bond ETF (SGOV) which brought in $3.6 billion, collectively, ETF.com data shows.  

On the other side of the ledger, nine of the 10 funds with the greatest losses were equity-focused ETFs, with the iShares Russell 2000 ETF (IWM) alone shedding $1.5 billion.  

More Hikes Predicted 

Investors’ movement from stocks to bonds—often seen as safer investments during economic downturns—come after multiple Federal Reserve officials have come forward in predicting more interest rate hikes to come and elevated interest rates for the foreseeable future.  

“I think something above 5[.0%] is absolutely, in my judgment, going to be likely,” Federal Reserve Bank of San Francisco President Mary Daly said in a streamed interview with the Wall Street Journal on Monday, in reference to interest rate expectations for 2023.  

She went on to add that the central bank’s terminal rate, which indicates the highest point the federal funds rate would reach this cycle, is unclear and depends on inflation-related data to come.  

Daly’s comments come just a week after Minneapolis Fed President Neel Kashkari stated that the central bank’s so-called terminal rate could reach as high as 5.4% before easing, in a post on Medium. Both Kashkari and Daly reiterated the Fed’s commitment to reaching a 2% inflation target. The fed funds rate currently sits between 4.0% and 4.25%.  

Other Federal Reserve officials also warned against an “unwarranted” loosening of financial conditions in lieu of dashing their attempts to achieve price stability, according to the minutes from the Federal Open Market Committee’s mid-December meeting on Jan. 4. They went on to add that if slower economic growth did not ensue in 2023, the possibility of a recession was a “plausible alternative.”  

Wall Street institutions are also sounding the alarm for a recession in 2023, Bloomberg News reported, with BlackRock’s Investment Institute stating thata recession is foretold,” and Barclays predicting “one of the weakest years for the world economy in 40 years.” 

 

For a full list of last week’s top inflows and outflows, see the tables below:     

 

Top 10 Creations (All ETFs)

TickerNameNet Flows ($,mm)AUM ($, mm)AUM % Change
AGGiShares Core U.S. Aggregate Bond ETF1,282.5984,549.051.52%
HYGiShares iBoxx USD High Yield Corporate Bond ETF1,216.5916,930.917.19%
SGOViShares 0-3 Month Treasury Bond ETF1,106.397,496.0814.76%
TLTiShares 20+ Year Treasury Bond ETF844.5028,623.032.95%
BILSPDR Bloomberg 1-3 Month T-Bill ETF685.8927,166.622.52%
GBILGoldman Sachs Access Treasury 0-1 Year ETF645.875,209.2812.40%
IEMGiShares Core MSCI Emerging Markets ETF549.4265,728.480.84%
USFRWisdomTree Floating Rate Treasury Fund426.6213,488.913.16%
XLIIndustrial Select Sector SPDR Fund420.5513,831.243.04%
LQDiShares iBoxx USD Investment Grade Corporate Bond ETF362.7536,083.861.01%

 

Top 10 Redemptions (All ETFs)

TickerNameNet Flows ($,mm)AUM ($, mm)AUM % Change
IWMiShares Russell 2000 ETF-1,515.3350,776.97-2.98%
SPYSPDR S&P 500 ETF Trust-1,062.61352,804.37-0.30%
QQQInvesco QQQ Trust-788.63142,014.01-0.56%
SHViShares Short Treasury Bond ETF-574.8019,766.30-2.91%
IWDiShares Russell 1000 Value ETF-516.6153,981.17-0.96%
IVViShares Core S&P 500 ETF-497.30286,674.58-0.17%
IWFiShares Russell 1000 Growth ETF-465.1957,711.54-0.81%
VYMVanguard High Dividend Yield ETF-340.7449,930.54-0.68%
XLEEnergy Select Sector SPDR Fund-293.9939,910.27-0.74%
IYRiShares U.S. Real Estate ETF-224.703,590.19-6.26%

 

ETF Weekly Flows By Asset Class

 Net Flows ($, mm)AUM ($, mm)% of AUM
U.S. Equity-2,695.243,816,242.92-0.07%
International Equity2,105.231,163,438.000.18%
U.S. Fixed Income9,404.591,171,505.770.80%
International Fixed Income-86.18139,483.66-0.06%
Commodities245.43130,413.360.19%
Currency-23.633,697.46-0.64%
Leveraged169.4143,869.100.39%
Inverse329.1524,436.321.35%
Asset Allocation-144.4716,830.81-0.86%
Alternatives20.568,841.930.23%
Total:9,324.846,518,759.350.14%

 

Asset Classes (Year-to-Date)

 Net Flows ($, mm)AUM ($, mm)% of AUM
U.S. Equity-2,695.243,816,242.92-0.07%
International Equity2,105.231,163,438.000.18%
U.S. Fixed Income9,404.591,171,505.770.80%
International Fixed Income-86.18139,483.66-0.06%
Commodities245.43130,413.360.19%
Currency-23.633,697.46-0.64%
Leveraged169.4143,869.100.39%
Inverse329.1524,436.321.35%
Asset Allocation-144.4716,830.81-0.86%
Alternatives20.568,841.930.23%
Total:9,324.846,518,759.350.14%

 

Disclaimer: All data as of 6 a.m. Eastern time the date the article is published. Data is believed to be accurate; however, transient market data is often subject to subsequent revision and correction by the exchanges.

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