Fixed-income comeback: biggest fund flows since January
U.S. fixed income ETFs saw their highest investor engagement since early January, with large inflows into short-duration Treasuries, corporate, CLO and long-term Treasury funds last week.
VettaFi’s Investor Behavior Intelligence platform recorded the largest U.S. fixed income investor engagement since early January last week. Eight of the top 10 fixed income funds by inflows were U.S.-focused and together attracted about $5.9 billion over the week.
The iShares 0-3 Month Treasury Bond ETF (SGOV) led inflows with $1.37 billion as investors favored ultra short-maturity Treasuries to preserve liquidity and limit interest-rate sensitivity. The Vanguard Short-Term Treasury ETF (VGSH) took in $358.81 million; VGSH targets 1–3 year Treasuries and has an effective duration near two years.
Broad-market bond ETFs drew sizeable additions. The iShares Core U.S. Aggregate Bond ETF (AGG) added $776.68 million and the Vanguard Total Bond Market ETF (BND) added $766.41 million. AGG holds about $138.5 billion, BND about $160.2 billion, and both funds report effective durations around 5.7 years.
Investment-grade corporate ETFs recorded notable inflows. The iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD) drew $1.08 billion and the Vanguard Intermediate-Term Corporate Bond ETF (VCIT) attracted $648.62 million. LQD’s effective duration is roughly 7.9 years; VCIT’s is about six years. The iShares Broad USD High Yield Corporate Bond ETF (USHY) received $538.14 million.
Structured credit and long-duration Treasuries also gained capital. The Janus Henderson AAA CLO ETF (JAAA), which provides exposure to AAA-rated CLO tranches and floating-rate loan income, saw $553.22 million of inflows. The iShares 20+ Year Treasury Bond ETF (TLT) pulled in $973.69 million; TLT’s effective duration is around 15 years.
Market participants pointed to volatility in the technology sector, uncertainty over Federal Reserve policy and renewed tensions in the Middle East as factors behind the flows, prompting some investors to lock in yields or shift into short-duration products.
Todd Rosenbluth, head of research at VettaFi, noted: “While some investors continue to hide out from market volatility in short-term Treasury bond ETFs, others have been willing to take on credit risk. It is encouraging to see investment grade corporate bond ETFs gain traction as we head into earnings season.”
The inflows occurred during the first weeks of the third quarter as investors reallocated capital across short-duration Treasuries, broad-market bond ETFs, corporate credit, high-yield and structured-credit funds.
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