Even though yields spiked over the second month, bond-related exchange traded funds experienced positive first quarter as central banks pressured interest rates around the world and the Federal Reserve pushed off a rate hike.
Long-term bond ETFs surprised investors, finishing up 1.62% on average over the first quarter, writes Jeff Tjornehoj, head of Americas research for Lipper Inc., on InvestmentNews.
The top performing bond ETFs over the first quarter included extended duration bond funds. These ETFs with longer durations are the most susceptible to changes in interest rates, and with benchmark 10-year Treasury yields falling about 40 basis pints in March, longer duration bond ETFs outperformed.
For instance, the iShares 20+ Year Treasury Bond ETF (NYSEArca: TLT) rose 4.2%, PIMCO 25+ Year Zero Coupon US Treasury (NYSEArca: ZROZ) gained 6.4% and Vanguard Extended Duration Treasury ETF (NYSEArca: EDV) increased 5.3% over the first three months.
However, these long-term Treasury bond funds were not the most popular plays during the first quarter. Instead, investors were funneling cash into corporate bonds. For instance, among fixed-income ETFs with the largest inflows, the iShares iBoxx $ Investment Grade Corporate Bond ETF (NYSEArca: LQD) saw $2.7 billion in net inflows over the first three months, SPDR Barclays High Yield Bond ETF (NYSEArca: JNK) added $1.6 billion and iShares iBoxx $ High Yield Corporate Bond ETF (NYSEArca: HYG) attracted $2.2 billion.