Investment grade bonds back on European investors’ radar

Fixed income has played a crucial diversifying role during equity market downturns of the previous two decades. However, this year’s turn of events would suggest that this doesn’t seem to be the case anymore, with both fixed income and equity markets experiencing a decline as represented by their respective proxies, the Bloomberg U.S. Aggregate Index and the S&P 500 Index, returning -8.47% and -13.30% year-to-date respectively. With that being said, there have been some signs of a recovering relationship during May. The debt market remained flat over the month while the stock market persisted in its downward trajectory, which helps explain why inflows stormed Fixed Income ETFs. Fixed Income ETFs domiciled in Europe made a comeback registering USD$1.61 billion[1] net inflows for the week between May 23rd and May 27th, compared to USD$1.5 billion net outflows in the prior week. Corporate bond ETFs added USD$565 million of assets while Government Bond ETFs experienced almost double that amount, recording USD$955 million in net inflows. After posting net outflows the previous week, Investment Grade Bond ETFs netted a staggering USD$1.81 billion of inflows. Similarly, High Yield Bond ETFs reversed their losing streak, having recorded USD$62.08 million of net inflows over the last week compared to USD$176.27 million of net outflows.  

Top 5 Fixed Income ETF flow receivers last week:

• iShares $ Treasury Bond 7-10yr UCITS ETF (IBTM): USD$288 million
• Lyxor EuroMTS Highest Rated Macro-Weighted Govt Bond 1-3Y (DR) UCITS ETF (X57E): USD$232 million
• iShares $ Corp Bond UCITS ETF (LQDE): USD$215
• iShares J.P. Morgan $ EM Bond UCITS ETF (SEMB): USD$196 million
• iShares € Corp Bond SRI 0-3yr UCITS ETF (SUSE): USD$188 million

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[1] Fund flow Data as of May 27th.