It seems as though hardly a week goes by without some fretting and posturing over when the Federal Reserve is going to raise interest rates. Some experts say the Fed has missed its window to boost borrowing costs, while others believe the Fed will wait until late in the first quarter of 2016.
Other market observers believe a rate hike before the end of 2015 is still on the table.
All of the conjecture and speculation regarding the Fed's next move is not preventing investors from pouring into fixed income exchange-traded funds this month. As of October 9, the top four asset-gathering ETFs this month are all bond funds and three of those four are corporate bond ETFs, both investment-grade and high-yield funds.
In the first nine months of 2015, investors added $7.7 billion to investment-grade corporate bond ETFs. While we think demand for high-quality fixed-income securities is strong, in light of modest Treasury yields, while in our view inflows have also been aided by actions banks have taken to reduce inventories of bonds Available for Sale, said S&P Capital IQ in a research note out Monday.
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Now, total assets held by global fixed income ETFs are approaching $500 billion and there is new king atop the bond ETF leader board. Since the start of the third quarter, the iShares Barclays Aggregate Bond Fund (NYSE:AGG) has added over $1.8 billion in new assets, while the rival Vanguard Total Bond Market ETF (NYSE:BND) has lost nearly $291 million in capital.
That has helped the $26.8 billion AGG reclaim the title of world's largest fixed income ETF.
Top Asset-Gathering ETFs
To this point in October, the SPDR Barclays Capital High Yield Bnd ETF (NYSE:JNK) is the top asset-gathering ETF of any variety, having pulled in nearly $2 billion in fresh assets.
The iShares IBoxx $ Invest Grade Corp Bd Fd (NYSE:LQD), the largest corporate bond ETF is next on the list with October inflows north of $937 million. Some professional investors are increasingly turning to ETFs as liquidity in the corporate bond market dries up.
At the same time that bonds are trading less regularly, U.S. corporations have frequently tapped the credit markets while interest rates remain low. According to S&P Capital IQ Leveraged Commentary & Data, the $919 billion of investment-grade issuance in the first nine months of 2015 was 23 percent higher than a year earlier and was approaching the full 2014 issuance totals of $979 billion, said S&P Capital IQ.
High-Trading, Taxable, Fixed Income ETFs
As the research firm noted, the $22 billion LQD has average daily volume of more than three million shares, while there are 20 taxable fixed income ETFs that trade more than 500,000 shares on a daily basis.
That group includes JNK, the second-largest junk bond ETF, and the $6.6 billion iShares Barclays 20+ Yr Treas.Bond (ETF) (NYSE:TLT). TLT is one of the most popular U.S. government bond ETFs.
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