Investors pull $1.5bn from bond ETFs in January on inflation fears

Investors pull $1.5bn from bond ETFs in January on inflation fears

Investors pulled money from fixed income exchange traded funds for the first time in more than five years in January, barring a one-off blip at the onset of the Covid-19 pandemic.

The selling comes amid a sharp repricing of bonds as central banks have turned more hawkish in the face of multi-decade high inflation in much of the developed world.

With bond yields rising and prices falling, some investors jumped ship, resulting in net outflows of $1.5bn globally from fixed income ETFs in January, according to data from industry leader BlackRock, a far cry from the $27.3bn pumped into the sector in December.

Barring outflows at the height of the Covid-induced market crash in March 2020 — which were fully reversed a month later — this was the first outflow since an $800mn dip in November 2016, when Donald Trump’s presidential election victory fuelled a sharp jump in US Treasury yields amid expectations of rising inflation off the back of higher government spending and radical tax cuts.

The sell-off “is not completely unexpected because of the volatility we have seen with the repricing in the rates market in both the US and Europe,” said Karim Chedid, head of investment strategy for BlackRock’s iShares arm