Bond ETF inflows in January marked the strongest month for net inflows on record.
Fixed income ETFs attracted $9.4 billion (€8.74 billion) over the month and January’s inflows outweighed inflows seen following the response of central banks to the Covid pandemic, according to research by Invesco.
There was strong demand for euro-denominated assets, Invesco noted, with euro investment grade credit the strongest category, adding €3.72 billion. Euro government bonds followed this, attracting €1.86 billion in inflows.
Paul Syms, head of Emea ETF fixed income product management at Invesco, said January was a “broadly positive month” for financial markets, with both bonds and equities rallying.
“Within fixed income, credit markets led the way as lower-rated bonds outperformed higher-rated bonds, in line with the ‘risk-on’ tone from equity markets,” said Syms.
High-quality government and inflation-linked bonds also produced “solid returns,” Syms said, as confidence grew that central banks “would slow the pace of rate hikes in coming months which, with peak rates potentially now in sight, could lead to the soft landing that would be positive for many asset classes.”
Investors leant towards US dollar-denominated bonds over the previous year in the wake of the Russia-Ukraine conflict, Syms said, alongside the impact of rising energy prices on the eurozone economy. Euro-denominated bonds have returned to vogue, primarily because spreads are trading at wider levels than their US dollar counterparts, Syms noted.
Risk appetites among fixed income investors increased over the month, with emerging market debt and high yield both attracting over €836 million each, on the back of improving market sentiment, Invesco noted.
Aggregate bonds and investment-grade credit ETFs saw inflows of $836 million and €1.3 billion across Us dollar, sterling and global.
The only two sectors to see outflows of more than $100 million (€92.9 million) were cash management and inflation ETFs, losing €836 million and €650 million, respectively.
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