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Bond ETFs Amass Record $39 Billion in July in Big Rate-Cut Bet

(Source: Strategas)

(Bloomberg) -- Fixed-income ETFs took in a historic amount of cash last month as investors pile into the bond market, positioning for the start of a Federal Reserve rate-cutting cycle. 

Bond funds saw inflows of roughly $39 billion in July, the most on record, according to data from Strategas. Investors are lavishing money across the fixed-income spectrum, from longer-duration government bonds and short-term obligations issued by Corporate America to muni ETFs. 

The record spoils track a rally in Treasuries that has sent some yields tumbling to the lowest levels in months, with swaps traders now pricing in three quarter-point cuts in interest rates this year amid softening economic data. Fed Chair Jerome Powell said on Wednesday an interest-rate cut could come as soon as September.

“People want bonds,” said Todd Sohn, an ETF strategist at Strategas, adding that investors are also “trying to take advantage of rates starting to move lower, so you get the price appreciation part.”

The iShares 20+ Year Treasury Bond ETF (ticker TLT) was among those seeing the heaviest flows, with an intake of $2.2 billion. The iShares Core U.S. Aggregate Bond ETF (AGG) also saw more than $2 billion come in, while the Vanguard Total Bond Market ETF (BND) took in about $1.9 billion. 

Meanwhile, the iShares Broad USD High Yield Corporate Bond ETF (USHY) rounded out the list of top gainers, with a $2.9 billion haul, according to data compiled by Bloomberg. 

Fed officials this week opted to keep their benchmark rate in a range of 5.25% to 5.5%, a level they have maintained since last July. On Thursday, the yield on 10-year notes slumped below 4% for the first time since February after weekly initial jobless claims rose and manufacturing data reinforced the idea that the US labor market is cooling. 

All told, 2024 is shaping up to be a huge year for capital flows with stock funds also on a tear. Equity ETFs took in $78 billion last month, the most since December, according to Strategas. Strategists at Bloomberg Intelligence recently predicted that 2024 could be a record year for ETF flows given a strong haul in the first six months of the year. So far this year, US ETFs have clocked inflows of more than $538 billion, putting them on pace to surpass 2021’s $911 billion hoard. 

Read more from Bloomberg Intelligence: History Shows Strong 1H for S&P 500 Sets Up 2H

--With assistance from Michael Mackenzie and Ye Xie.

©2024 Bloomberg L.P.