EM debt drives global bond ETF inflows

Added 9th August 2017

The global bond ETF industry garnered almost twice the amount of capital from investors in the second quarter of 2017 as it did the year prior, thanks to sustained demand for EM debt passive products.

EM debt drives global bond ETF inflows

Concerns over liquidity and ETFs being more loss-prone have not stopped passive bond products from surging in popularity, as investors hunt for new sources of yield.  

Data from BlackRock, one of the biggest global ETF providers, has revealed that global net inflows into bond ETFs surged around 60% to $43.3bn from $25.8bn in Q2 year-on-year.

The second quarter high was just short of the industry record set in the first quarter, when said products attracted $44.5bn.

Some 15 years on since the first bond ETF was launched, the global industry is now a billion dollar business, with assets under management totalling $649.6bn as at 30 June 2017.

BlackRock’s own iShares brand of ETFs captured $21bn in Q2, according to its findings.  

One of the largest drivers of positive flows into bond ETFs was the sustained demand for passive emerging markets debt products.

As investors continued to hunt for alternative sources of yield, global EM bond ETFs took in $7.5bn of net inflows in the second quarter.

However, BlackRock noted that the EM debt craze has "tailed off at the start of Q3," following central bank steps toward normalisation and increases in Treasury yields. 

The world’s largest investment manager also pointed out that demand for dollar denominated debt remained strong as did requests for European investment grade, post-French election.

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