Vanguard’s biggest bond ETF becomes first to break $151b
A bond exchange traded fund listed in the US crossed $US100 billion ($151 billion) for the first time since such products launched over two decades ago.
A $14 million inflow pushed assets in the Vanguard Total Bond Market ETF above $US100 billion for the first time ever, data compiled by Bloomberg shows. The Nasdaq-listed security (ticker BND) has absorbed $15.6 billion ($25 billion) so far this year.
The milestone marries two of 2023’s biggest trends: The highest yields in years have made fixed-income more appealing, while relatively low-cost, tax-efficient ETFs have consistently stolen market share from their more expensive mutual fund brethren.
“There’s likely a large portion of flows coming from mutual funds too, as a source of growth,” said Todd Sohn, ETF and technical strategist at Strategas Securities, adding that since the interest-rate liftoff in March 2022 through last month, fixed-income mutual funds have lost $500 billion.
BND’s milestone comes amid a turbulent year for fixed income. Stubborn inflation and the Federal Reserve’s campaign to cool it unleashed volatility across asset classes, sending Treasury yields soaring to decade-plus highs. Growing conviction that the central bank has reached the end of its tightening cycle ignited a fierce bond rally over the past month.
All the while, BND – which charges 0.03 per cent per year – has steadily taken in cash over the course of 2023.
“It’s not surprising when you offer up 18,000 bonds for three basis points that’s going to get weatherproof flows,” Bloomberg Intelligence senior ETF analyst Eric Balchunas says. “That’s money coming in rain or shine, because it’s that good of a deal.”
Money has poured into bond ETFs as investors continuously recalibrate expectations for both central banks and the economy amid a still-strong labour market and robust economic growth.
In Australia in the past few months there has been a flurry of activity in the government bond-themed ETF space. In the 12 months to September, $2.6 billion flowed into fixed income ETFs and providers including Betashares, Global X, iShares launched new products.
VanEck launched three Australian government bond ETFs in September,
“We anticipate greater demand for fixed income as central banks have pushed nominal yields higher,” says Arian Neiron, VanEck’s managing director for the Asia Pacific.
“There is almost $15 billion out of $156 billion in Australian fixed income, and we see this segment of the market doubling in the next three years.
In the US, the $46 billion iShares 20+ Year Treasury Bond ETF (TLT) has been the biggest beneficiary of that speculation, attracting nearly $23 billion in 2023 amid a record drawdown.
BND tracks everything from Treasuries to corporate credit to securitised assets. The fund has gained about 2.4 per cent on a total return basis so far in 2023, and hasn’t posted a monthly outflow since May 2022.
While BND was the first bond ETF to break $100 billion, BlackRock’s rival product, The iShares Core US Aggregate Bond ETF (AGG), is close behind. AGG, which also tracks a wide basket of debt securities and charges 0.03 per cent annually, has amassed roughly $96 billion in assets.
Bloomberg
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