In September, when investors battened down the hatches, a majority of the modest ETF inflows were routed into haven US Treasury bond funds. Just 22% of fixed-income ETF flows went to corporate bond ETFs, in stark contrast to October when corporates accounted for nearly half.
In a dramatic contrast to the US$19.6 billion that flowed out from the high-yield bond market between January and September, high-yield bonds brought in US$7.8 billion, the biggest since April 2020.
Long-term bond funds, with exposures of 10 years or more, also saw inflows spike to US$6.7 billion – the third-largest record in history.
“High-yield is already implying a particularly elevated default rate that we don’t expect to realise unless there is a systemic-level recession,” Karim Chedid, head of investment strategy for BlackRock’s iShares ETF arm in the Emea region, told the Times. “The recession we are expecting for 2023 for the US wouldn’t trigger that big a pick-up in defaults.”
He also pointed to the US$7.3 billion in total flows into developing market stocks that occurred in October.
