- Bond ETFs have surged in 2024, representing 46% of all ETF launches in September, up from 20% earlier this year.
- The Federal Reserve’s interest rate cuts have spurred investor demand, with U.S. bond ETF inflows hitting $22.9 billion by September.
OUR TAKE
The number of bond-focused exchange-traded funds (ETFs) has almost doubled in 2024 compared to the previous year, as investors have shown a lot more interest in them on expectations of interest rate cuts by the US Federal Reserve. This trend is especially noticeable in the second half of the year as both retail and institutional investors look for ways to secure high yields before the Fed makes more cuts. Many new ETFs focus on different bond categories, offering a wide range of options for investors seeking income. These developments have led to record inflows into bond ETFs, indicating a strong shift towards fixed income products in a changing interest rate environment.
–Heidi Luo, BTW reporter
What happened
Launches of bond-focused exchange-traded funds (ETFs) have picked up in 2024, nearly doubling the number launched in the previous year. According to data from CFRA and Strategas, nearly 120 bond ETFs have been launched as of September, compared to 79 during the same period in 2023. The surge in launches was most pronounced in September, with bond products accounting for 46% of all ETF debuts.
These new products vary in focus, from municipal bond exposure to high yield and collateralised loan obligations, and cater to a diverse group of investors. The surge in interest is largely due to expectations that the Federal Reserve will continue to cut interest rates following its recent 50 basis point cut. Falling interest rates tend to help bond prices and attract more investors to these products.
The yield on the benchmark 10-year Treasury note recently settled at around 3.75%, down from its peak of just over 5% in October last year. Meanwhile, bond ETFs have seen significant inflows, with average monthly net investment in US bond ETFs reaching a record $25 billion in 2024, up from $17.1 billion in 2023, according to Strategas data. As of 20 September, inflows for the month had already reached $22.9 billion, according to data from Trackinsight, which tracks the global ETF market.
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Why it’s important
The rise in bond ETF launches reflects a broader trend of both retail and institutional investors turning to fixed income as a safe haven amid economic uncertainty. With the Federal Reserve expected to cut interest rates further, bond prices are likely to rise, leading to potentially strong returns for investors locking in today’s higher yields.
According to Scott Davis, head of ETFs at Capital Group, fixed income investors are increasingly favouring actively managed bond ETFs, which allow fund managers to select securities they believe will outperform.
As equity markets become more saturated, fixed income ETFs represent a growing frontier in asset management, offering investors both stability and growth opportunities.
