The Resurgence of Fixed Income ETFs

Meta-description: Explore the remarkable recovery of fixed income ETFs in 2023, highlighting growth, market impact, and future prospects in the wake of a challenging year.

The 2024 Trackinsight Global ETF Survey Report is packed with valuable insights into the global trends shaping ETF markets. In this article, we delve into the latest trends in Fixed Income ETFs, with a particular focus on the U.S., offering a closer look at what the report reveals.

The world of fixed income investing has undergone significant transformations since the inception of the first fixed income ETF in Canada in 2000. Today, this sector captures a substantial 20% of global ETF assets, underscoring its vital role in diversified investment portfolios. However, the journey through 2022 was marked by unprecedented challenges, leading to the worst calendar year in history for bondholders due to soaring interest rates. This tumultuous period saw long-term Treasury bonds plummeting nearly 30%, overshadowing the S&P 500’s 19% decline, and casting doubts on bonds’ reliability as reserve assets.

The 2022 Descent and 2023’s Lining

Investors entered 2023 with trepidation, mindful of the previous year’s turbulence and remained wary about recession risks, geopolitical unrest, and potential rate hikes. Yet, as the year unfolded, the bond market revealed a resilient streak.

Despite volatility peaks, with the hitting 5% before receding to 3.88%, the government bond market managed to find equilibrium, closing the year on a stable note. This stabilization was buoyed by anticipations of rate reductions, a sturdy American economy, and a softening , which collectively benefited riskier bond segments, including emerging market debt.

A Year of Recovery and Records

The fixed income ETF landscape mirrored this recovery, with several segments posting impressive gains:

• Global Sovereign Bonds: Marked a recovery with a 4.44% return, a significant turnaround from the previous year’s loss.

• Corporate Bonds: Both global and investment-grade segments saw substantial upticks, with returns of 8.52% and 7.80%, respectively, indicating a robust recovery from their 2022 slumps.

• High-Yield Corporate Bonds: Led the recovery efforts with a 10.67% return, signaling a strong comeback.

• Emerging Markets Debt and Other Segments: Also showed positive momentum, contributing to the broader fixed income recovery narrative.

This resurgence culminated in a milestone for the primary global fixed income ETF markets in Europe and North America, which reached a historic total AUM of $2 trillion by the end of 2023, nearly doubling from $1.12 trillion in 2019.

Looking Ahead

The fixed income outlook suggests that yields could trend lower globally. In the US and the euro area, interest rates are expected to stay high in 2024, but the potential for rate cuts is on the horizon.

Interested in learning more about Global ETF trends? Download Trackinsight’s 2024 Global ETF Survey Report titled “Unlock 50+ Charts of Worldwide ETF Trends” to gain access to valuable insights on the global ETF universe, from active and fixed income strategies to the latest trends in crypto, ESG and thematic investing.