Fixed Income ETFs Weekly Recap (March 21 to 25, 2022)

Fixed Income ETFs lured in over $4.19 billion in net inflows between March 21st and March 25th and roughly $29.4 billion overall this year.

America-domiciled Fixed Income ETFs had the lion's share – receiving $2.98 billion of the total net inflows, far less than the previous week ($5.4 billion). Meanwhile, Europe-domiciled Fixed Income ETFs netted $1.17 billion last week, after attracting $1.02 billion in the prior week.

Impact of the Fed increasing benchmark rates

The search for yield has been a constant catalyst for this product segment with no end in sight for the Russia-Ukraine war. Also weighing on the markets is the changing monetary policies amid rising inflation. Last week, the U.S. Federal Reserve lifted its benchmark Federal Funds Rate by 0.25% and signalled six more hikes this year.

By notching up rates, the Fed is indirectly – through banks – raising borrowing costs in the hopes of easing consumer demand that may be pushing prices higher. This process affects the bonds markets since higher interest rates mean lower prices for existing bonds. Consequently, the changes will trigger a reshuffling of fixed income investors' strategies which can be visible through tracking fund flows into Fixed Income ETFs.

America's Fixed Income ETFs top fund action

Among the top inflows receivers last week were iShares 20+ Year Treasury Bond ETF (TLT, $2.57 billion), iShares Short Treasury Bond ETF (SHV, $1.06 Billion), and iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD, $731 million).

TLT, the largest recipient, seeks to track IDC US Treasury 20+ Year Index (4PM) and invests in U.S. Treasury bonds with remaining maturities greater than twenty years. The fund has a total expense ratio of 0.15% and trades primarily on the NYSE Arca. As of March 25th, 2022, TLT's weighted average coupon rate is 2.48%.

On the other side of the fund flows spectrum, iShares iBoxx $ High Yield Corporate Bond ETF (HYG, -$2.62 billion), SPDR Bloomberg Barclays 1-3 Month T-Bill ETF (BIL, -$585 million), and SPDR Bloomberg High Yield Bond ETF (JNK, -$529 million), were among the biggest flow bleeders last week.

HYG, the biggest flow bleeder last week, seeks to track the Markit iBoxx USD Liquid High Yield Index and invests in U.S. denominated high-yield corporate bonds. In terms of sector exposure, consumer cyclical has the highest weighting (19.84%), followed by communications (18.43%), consumer non-cyclical (14.94%) and energy (12.01%). 28.44% of the underlying corporate bonds have a maturity of 7-10 years, 22.59% have 3-5 years, and 24.47% have 5-7 years. More than half of the constituents are BB-rated, 34.54% B rated, and 10.14% CCC rated. HYG has a total expense ratio of 0.48% and trades primarily on the NYSE Arca. As of March 25th, 2022, the fund's weighted average coupon rate is 5.45%.

Europe's Fixed Income ETFs top fund action

Among last week's most popular Fixed Income ETFs in Europe were iShares $ Treasury Bond 3-7yr UCITS ETF (CSBGU7, $330 million), iShares $ Corp Bond UCITS ETF (LQDE, $271 million), and Invesco US Treasury Bond 7-10 Year UCITS ETF Dist - USD (TREX, $257 million).

The top recipient CSBGU7 seeks to track the ICE U.S. Treasury 3-7 Year Bond Index and invests in US Dollar-denominated government bonds issued by the US Treasury. 54% of the underlying bonds mature in 3-5 years, and the rest in 5-7 years. As of March 25th, 2022, the fund's weighted average coupon is 1.56%.

CSBGU7 has a total expense ratio of 0.07% and trades on multiple European exchanges such as the London Stock Exchange (CBU7, USD or CU71, GBP), the SIX Swiss Exchange (CSBGU7, USD), the Euronext Amsterdam (CBU7, EUR), the Deutsche Boerse Xetra (SXRL, USD), and the Borsa Italiana (CSBGU7, EUR).

Among the least popular last week were Xtrackers II Japan Government Bond UCITS ETF 1C - JPY (XJSE,-$170 million), iShares $ Treasury Bond 1-3yr Hedged EUR UCITS ETF (C) - EUR (IBTE, -$169 million), and iShares China CNY Bond UCITS ETF (Dist) - USD (CNYB, -$154 million).

XJSE aims to track the FTSE Japanese Government Bond Index and invests in JPY-denominated bonds issued by the Japanese government. As of February 28th, 2022, 25% of the underlying bonds mature in 15-25 years, 16.2% in 7-10 years, 15.1% in 10-14 years, and 14% in 25+ years.

The fund has a total expense ratio of 0.15% and trades on multiple European Exchanges such as the Borsa Italiana (XJSE IM, EUR), the Deutsche Boerse Xetra (XJSE GY, EUR), and the SIX Swiss Exchange (XJSE SW, JPY).

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