Bond ETF Market Forecast to Hit $2 Trillion

July 10th at 8:41am by John Spence

Although the first ETFs were stock-based funds, the fixed-income side of the business is rapidly catching up as nervous investors continue to shun equities and pile into the perceived safety of bonds.

BlackRock’s iShares predicts that assets in global fixed-income ETFs will grow to over $2 trillion from $302 billion currently, over the next decade.

In the U.S., iShares forecasts that the bond ETF segment will likely grow to $1.4 trillion from $222 billion.

“The dynamic forces driving the long-term expansion of the fixed income ETF market have been especially evident this year, with the market attracting some of its strongest asset flows to date,” said Jennifer Grancio, head of iShares global business development at BlackRock. “Yet even after a decade of continuous growth, fixed income ETFs are still just scratching the surface of their potential.”

Risk-averse investors are favoring bond ETFs over equities. Fixed-income ETFs listed in the U.S. have gathered $35.1 million year to date, according to data from the ETF Industry Association. [Bond ETFs Remain Top Draw in June]

At the end of June, there was $1.2 trillion in U.S.-based ETFs. There was $564.1 billion in U.S. equity ETFs, $246.5 billion in international stock funds and $222.1 billion in the fixed-income category.

There are fixed-income ETFs tracking U.S. Treasuries, corporate bonds, muni bonds and other sectors.

The largest bond ETFs include iShares Barclays TIPS (NYSEArca: TIP), iShares iBoxx Investment Grade Corporate Bond (NYSEArca: LQD) and Vanguard Total Bond Market (NYSEArca: BND).

During the first half of 2012, global fixed-income ETFs accounted for 40% of inflows, according to BlackRock.

“As fixed income ETFs continue to be more fully embraced by individuals, advisors and financial institutions, they will solidify their standing as an essential fixed income capital market instrument, in a truly evolutionary step for the market,” said Matthew Tucker, head of iShares fixed income investment strategy at BlackRock.

The opinions and forecasts expressed herein are solely those of John Spence, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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