Bond ETF demand jumps as rates slide
Investors added a net $20 billion in bond ETFs to their portfolios during the first three weeks of June as the 10-year Treasury yield fell toward 2%. June's flows were highest total in the past 30 months despite being only a partial period. Since January of 2017 there has been only one month when net flows were negative, October 2018, which preceded a surge of flows from November to January as market volatility rose in the fourth quarter.
Much of the demand has been driven by market anxiety over earnings estimates and a consensus belief that lower rates aren't going away soon. Falling yields are indicative of a risk-off environment where equity prospects are low and portfolio goals switch to capital preservation rather than accumulation. However, ETFs are designed to be liquid and offer temporary hedges or parking spots for capital on a more opportunistic basis rather than more fundamental asset allocation decisions.