Bond ETF Inflows Set to Continue in 2024

Bond ETF Inflows Set to Continue in 2024

Australian investors flocked to bond ETFs in 2023 as rising interest rates made fixed income allocations more attractive, according to data recently released by the Australian Securities Exchange (ASX) and Vanguard.

Australian bond ETFs received A$3.81 billion in cash flows in 2023, a 37% improvement year on year. Global bond ETFs also attracted A$1.5 billion over the year.

“Although we expect central banks to cut interest rates in the second half of 2024, we’re unlikely to see the “zero-rate era” return any time soon. This means rates are likely to stay relatively higher for longer and are expected to settle in the 3%-4% range in Australia,” said Adam DeSanctis, Vanguard’s Head of ETF Capital Markets, Asia-Pacific.

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“While higher interest rates for longer might be painful for borrowers, they’re actually a good thing for investors over the long run, particularly for bond investors. We therefore anticipate bond ETFs to remain popular with Australian investors in the coming year, particularly as domestic bond return expectations have substantially increased since 2022 from 1.3-2.3% to 4.3-5.3% per annum over the next 10 years.

“Hopefully stabilising interest rates this year will also improve investor sentiment and we’re confident growth in the Australian ETF industry will continue”.