During the first week of March, fixed income ETFs gathered more money than equity products. While not rare, this is a sign of uncertainty in the markets. With on-again-off-again-on-again tariffs, many were turning to the relative safety of fixed income ETFs. In the subsequent days, demand for equity ETFs recovered. As of March 13, equity ETFs pulled in $22 billion for the month compared to $13 billion for fixed income products.
The yield on the 10-year Treasury bond declined more than 30 basis points in February. In the first week of March, it narrowed further before partially recovering and hovering around 4.3%. Recessionary concerns have been causing a flight to safety.
What Do the Flows Show?
We recently wrote about demand for ultra-short fixed income ETFs in the first two months of 2025. The trend has continued in March. The SPDR Bloomberg 1-3 Month T-Bill ETF (BIL ) and the iShares 0-3 Month Treasury Bond ETF (SGOV ) pulled in $2.9 billion and $2.1 billion, respectively, as of March 13. However, ETF investors took on some additional risk too.
The iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD ) and the Vanguard Intermediate-Term Corporate Bond ETF (VCIT ) also had more than $1.0 billion of net inflows. Meanwhile, the iShares Broad USD High Yield Corporate Bond ETF (USHY ) added more than $850 million.
Where Do Advisors See Opportunities?
During an asset allocation summit co-hosted from the Nasdaq MarketSite in Times Square last week, VettaFi asked advisors about what fixed income styles looked attractive. Investment-grade corporate bonds were the most popular (44% of respondents). However, high yield corporate bonds (31%) and Treasuries (29%) had a similar level of interest. It is clear that while some advisors are cautious, others are willing to take on credit risk.
Panelists from BondBloxx, F/m Investments, and State Street Global Advisors shared a range of intriguing insights. One was they disagreed with the recent market view that the Fed was going to cut rates three times in 2025, believing a less aggressive approach was likely. We also discussed how the fixed income ETF landscape continues to, and is likely to, evolve.
Fixed Income ETF Innovation Continues
For example, in December 2024, the BondBloxx Private Credit CLO ETF (PCMM ) came to market, providing high-yielding, lower duration fixed income exposure. The ETF provides access to middle market companies in a liquid diversified strategy.
Meanwhile, in January 2025, F/m Investments launched a suite of corporate bond ETFs including the F/m 2-Year Investment Grade Corporate Bond ETF (ZTWO ). The firm has had success with targeted Treasury bond ETFs that offer consistent exposure to a specific maturity. It has been great to see F/m provide more ETF tools to advisors.
Next week, executives from BondBloxx and F/m Investments will join me on stage at Exchange. We will talk about interest rates, inflation, and where the experts see the appealing opportunities in the fixed income market. It is quite possible the landscape will have shifted by then. I can’t wait for the discussion. Hope to see you there.
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