Fixed income markets have faced a major headwind over the last 21 months given the Federal Reserve’s aggressive rate hikes. Regardless, money poured into fixed income ETFs at a record pace even outpacing equity ETFs for the first time in history. Investors were willing to overlook poor, near-term performance due to attractive yields and a shaky economic outlook.

Now, this trend could accelerate further given that the Fed seems to be in the final innings of its tightening campaign, while concerns about valuation in equities linger. Therefore, many believe that the growth of fixed income ETFs relative to equity ETFs is not a blip, but the start of a multiyear trend. And, asset managers are responding with a bevy of new fixed income ETF launches.

Overall, inflows to fixed income ETFs are up nearly 10% compared to last year. Many are eager to lock in these elevated yields especially in areas with lower risk like Treasuries. Of course, the major challenge for fixed income investors is assessing if a pivot in policy will arrive imminently or are we due for a period of ‘higher for longer’. In the latter scenario, short-duration bonds will outperform, while long-duration will struggle. 

Finsum: Fixed income ETFs are seeing a surge in new issuances and inflows. Find out why many expect this trend to continue over the next few years.