“Short-term debt is more attractive when interest rates rise because it’s less exposed to losses if inflation surges,” according to the Journal. “Long-term debt is more vulnerable to inflation pressures, which erode the purchasing power of bonds’ fixed coupon payments, and tends to fall further when interest rates rise.”
Bond ETF asset flows revealed that investors utilized the investment vehicle to better manage risk in volatile market conditions. While many use ETFs for long term and core portfolio exposures, some investors incorporated ETFs to manage risk as geopolitical uncertainty affected market volatility and potential impact to global economies. For instance, the volume of ETF trading in the first quarter showed significant activity in U.S. Treasury, investment grade, emerging market and high yield bond ETFs.
“Bond ETFs proved particularly popular in April, accounting for six of the top 10 asset gainers with combined inflows of nearly $9 billion, according to FactSet. All six ETFs were from BlackRock’s iShares lineup, and included ETFs that invest in Treasurys maturing in one year or more, investment grade corporate bonds and bonds with floating interest rates,” reports the Journal.
For more information on the fixed-income market, visit our bond ETFs category.