It’s been a lousy year for bond investors. But someone forgot to tell bond fund BUYERS! They’re plowing the most money into bond ETFs and mutual funds since at least 2010.
Take a look at the MoneyShow Chart of the Day, which shows fund flow data from Morningstar via Bloomberg. You can see that a whopping $625 billion flowed into bond funds in the year through August – even as the iShares Core US Aggregate Bond ETF (AGG) has lost 4% year-to-date and the iShares 20+ Year Treasury Bond ETF (TLT) has dropped 6.9%.
Source: Bloomberg
Considering many investors chase performance – or flee from the lack of it – the numbers are pretty remarkable. So, what gives?
First, we’re seeing some of the highest yields in many years. At 5%, the 10-year Treasury Note yield is the highest since a brief period in 2023 – and before that, 2007. That’s a big enough number relative to recent history to get income investors to bite
Second, the difference between the yield on the 10-year and the estimated forward dividend yield on the S&P 500 Index (^SPX) is incredibly wide. In fact, that spread is the highest in two decades of record-keeping by Bloomberg.
Third, investor demographics are supporting demand for bonds. As more Baby Boomers and other investors age into retirement, more target-date funds and similar vehicles are shifting into more-conservative investments – aka, bonds.
Then there are the contrarians who just can’t resist diving in with sentiment so negative. If you’re one of them, maybe now IS the time to leg into bond ETFs.
