MW Bond-ETF inflows surge as demand returns for Treasurys

By Christine Idzelis

'We still believe Treasurys have a very important role as ballast within a diversified portfolio in times of stress,' says Vanguard's Roger Hallam

Demand for bonds has surged in the past week in the exchange-traded-fund market, as U.S. government debt reversed outflows.

Net inflows into fixed-income ETFs soared 70% in the week through Wednesday to $5.3 billion as investor appetite for U.S. Treasurys returned, according to a CreditSights note Thursday. U.S. Treasury ETFs attracted $2 billion after losing $2.1 billion the week before - with the inflow coming in at almost 50% more than the 13-week average, the note shows.

"We still believe Treasurys have a very important role as ballast within a diversified portfolio in times of stress," Roger Hallam, global head of rates at Vanguard, said in a phone interview. The income available in the bond market is attractive as investors consider exposures, he said.

Investors have been navigating the still-uncertain impact of tariffs on the U.S. economy. Worries persist that they risk increasing inflation for consumers or eroding corporate profits - depending on how much of the costs companies try to pass through to their customers.

Treasury ETF inflows over the past week were "barbelled" from a duration perspective, as investors mostly added to ultrashort- and long-term funds, the CreditSights analysts found. Hallam said that he likes Treasurys with intermediate durations, which he expects would perform well in "uncertain economic times."

The actively managed Vanguard Government Securities Active ETF VGVT, which provides broad exposure to the Treasury market, has an intermediate duration of around 5.8 years, according to Hallam. He said the ETF, launched on Wednesday, was designed to provide the stability and "liquidity" of a core government bond holding but that it also seeks to add incremental yield from other areas of fixed income during "a normal market environment."

"If the waters become more choppy, we will begin dynamically allocating more toward Treasurys," he said. "We are very mindful that this is a high-quality liquid portfolio."

Over the past week through Wednesday, investors added $1.9 billion to broad market fixed-income ETFs, marking a 54th straight week of inflows, the CreditSights note shows.

ETFs that focus on high-yield bonds, a riskier type of corporate credit with below-investment-grade ratings, attracted $252 million in an 11th consecutive week of net inflows - even if those flows were less than the prior week, the CreditSights analysts found.

Read: How junk bonds are signaling the same optimism about the U.S. economy as stocks

Flows into ETFs that buy leveraged loans, collateralized loan obligations and municipal bonds were also positive in the week through Wednesday, according to the analysts. By contrast, ETFs that target investment-grade corporate bonds saw outflows over the same period, they said.

Meanwhile, active fixed-income ETFs have been gaining traction with investors, as they turn to professionals to manage exposure to the various sectors of the vast bond market.

For example, the actively managed iShares Flexible Income Active ETF BINC, which may invest globally across fixed-income sectors, has amassed $10 billion in assets under management since launching in May 2023. Last month, J.P. Morgan Asset Management announced that it has launched the JPMorgan Active High Yield ETF JPHY with a $2 billion anchor investment from a large institutional client. Also in June, Vanguard announced the listing of the Vanguard Multi-Sector Income Bond ETF VGMS, which also is actively managed.

As investors consider exposure to different areas of fixed income, they're closely watching the Federal Reserve's monetary policy to discern the path of future interest rates.

Minutes of the Fed's June meeting, which were released on Wednesday, showed that "most participants assessed that some reduction in the target range for the federal funds rate this year would likely be appropriate." In setting rate policy, the Fed has been watching for ripple effects from tariffs on the economy, including the risk of price increases or a potential drag on growth.

Read: Door open for Fed to ease rates this year, minutes show

In Hallam's view, the Fed's monetary policy is currently "restrictive," and a cooling economy may prompt the Fed to cut rates toward the end of this year. He said that he doesn't see any imminent risk of recession, though.

Treasury yields were edging higher Thursday as investors weighed fresh data showing an unexpected drop in initial jobless claims. The yield on the 10-year Treasury note BX:TMUBMUSD10Ywas up less than 1 basis point at around 4.34%, while the 2-year Treasury rate BX:TMUBMUSD02Y increased about 1 basis point to around 3.87%, according to FactSet data, at last check.

-Christine Idzelis

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July 10, 2025 15:43 ET (19:43 GMT)

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