Bond exchange traded funds roared back in the first quarter as market volatility pushed investors into more conservative plays, and the strong inflows suggest that institutional investors may be taking a closer look at the investment vehicle.
By the end of February, U.S.-listed bond ETFs already attracted $14.1 billion in assets, or double total inflows into bond ETFs for all of 2013, reports Chris Flood for Financial Times.
Interest in ETFs that track fixed-income assets is beginning to gain momentum, but there is still room to grow. Bond ETFs saw $223 billion in inflows globally over the past five years. However, bond ETF assets still make up a disproportionate amount of money, compared to equity ETFs – there is $257.2 billion in U.S.-listed bond ETFs, whereas U.S.-listed equity ETFs have $1.3 trillion in assets.
Fixed-income ETFs may see greater growth as institutional investors begin to utilize the investment vehicle. According to a Greenwich Associates survey, one in five non-ETF users plan to invest in fixed-income related ETFs in the coming year. About two-thirds of existing users increased their usage since 2011.
Institutional trades can be traced to “large tickets,” or block trades. So far this year, buy and sell orders of over $5 billion have been executed on two iShares short-term Treasury ETFs.
During the 2008 financial crisis, bond ETFs, namely those that track corporate bonds, became an attractive alternative source of liquidity. For example, Matthew Tucker, head of iShares’ fixed income strategy team, said that the daily trading volume on iShares iBoxx $ Investment Grade Corporate Bond ETF (NYSEArca: LQD) jumped to $190 million in the fourth quarter of 2008, compared to daily volume of $20 million before the crisis. [ETF Inflows Finally Perking Up]
Additionally, the depth of liquidity has helped attract greater usage of large Treasury bond ETFs, which can see daily volumes trade up to $5 billion.