The latest data release from BlackRock’s iShares division revealed disturbing news about the state of ETFs in the bond market: Inflows fell to just $ 14 billion, the lowest since the start of the pandemic. The taxable corporate bond market is doing the worst, as investors invest less dollars in traditional corporate debt and junk bonds, amid fears of yield-devouring inflation. . Instead, investors are turning to shorter duration, inflation-protected bonds. Almost 40% of bond flows have been invested in inflation-linked bonds, an almost unprecedented number. Investors have also started investing in Chinese bonds, with the international sovereign debt market a relative winner among bond ETFs. China’s yield is the biggest draw for international investors, as they view debt as relatively safe and paying more than developed countries.
FINSUM: Expect corporate bond outflows to continue until the TIPS spread begins to shift towards the Fed’s 2% inflation target.
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