Fixed income ETFs record net inflows worth 12,000 million dollars in the first quarter

The fixed income ETFs capture new net assets worth 1,000 million dollars in March, raising the total for the current year to 12,100 million, according to data provided by Invesco. Meanwhile, fixed income markets achieved positive returns in March, after two months of modest results due to the stabilization of public debt bond yields, and the contraction of credit spreads.

According to Laure Peyranne, Head of ETFs Iberia, LatAm & US Offshore at Invesco, fixed income markets generally achieved positive returns in March, after two months of lackluster results due to the stabilization of public debt bond yields and the contraction of credit spreads. Although economic data were heterogeneous, central bank signals were generally considered accommodative, indicating that some easing of monetary policy is still likely later in the year.

In March, the Reserve Bank of Australia abandoned its restrictive bias, the last two hawks of the Bank of England's Monetary Policy Committee (who had voted in favor of continuing to raise rates) voted in favor of keeping rates unchanged and the Swiss National Bank surprised markets by cutting interest rates by 25 basis points. Not even the Bank of Japan, which raised rates for the first time in 17 years, was aggressive, with few signs of future monetary policy tightening. However, this lack of guidance on the pace of future rate hikes led to a depreciation of the currency, up to 150 yen per dollar, which could lead to more aggressive guidance in the near future. This moderate tone also favored equity markets and the S&P 500 index marked new historical highs.

Inflows into fixed income ETFs

It is likely that a focus on longer-term perspectives will favor fixed income markets, Peyranne points out. Fixed income ETF capital inflows remained moderate in March, with new net assets of $1 billion, raising the total for the first quarter to $12.1 billion. The flows of each fixed income category were heterogeneous, making it difficult to identify preferences for patterns or risk levels. Cash management ($900 million) remained the strongest category in net capital inflows in March, followed by EUR public debt bonds ($800 million), high yield ($700 million), green bonds ($300 million) and fixed maturity ($300 million). EUR IG debt (-$1.3 billion) suffered a strong sales current for the second consecutive month, although ME public debt bonds (-$700 million), leveraged/inverse (-$600 million, mainly eliminating exposure to a pronunciation of the 2-10 year tranche in US Treasury bonds) and inflation-linked (-$300 million) also recorded capital outflows.

Fixed income markets rebounded in March after the lackluster results of the first two months of the year, as bonds had experienced an excessive rally towards the end of 2023 in anticipation of imminent rate cuts. However, since the schedule of cuts has been postponed, central banks seem to consider that market expectations generally coincide with their perspectives. Central banks, which at the beginning of the year had leaned towards a generally more aggressive bias, seem to have become slightly more moderate in March. This indicates that they would be ignoring the short-term noise of economic data to focus on longer-term perspectives. This is likely to benefit fixed income markets, particularly as the first rate cuts from major central banks approach.

A new trend that they have also detected in the market from Invesco is the search for global strategies in fixed income.