Negative interest rates are creating financial turmoil around the world and opportunity in the U.S.
Investor money has been flocking to American federal, corporate and municipal bonds throughout the year but at an especially intense level in recent weeks as global central banks continue to cut rates in hopes of stimulating the moribund world economy.
Fixed income-focused exchange-traded funds pulled in a one-day haul of $906 million on Tuesday, part of $40 billion in inflows thus far in 2016, according to FactSet. Equity funds, by contrast, have seen $6.7 billion in outflows. The story is similar for actively traded mutual funds, where U.S. equity-based funds have seen $75.6 billion in outflows and bond funds, according to TrimTabs, have taken in about $53.6 billion.
The move comes as an increasing number of governments around the world show negative yields. The Japanese 10-year government bond was at -0.13 percent Thursday, while the German two-year yield was at -0.54 percent and Switzerland's 10-year yielded -0.43 percent.
Private banks over the past several days have threatened various measures should the move to negative yields continue.
In the U.S., money has been flowing across asset classes, with corporate bonds and municipals showing particular strength. Government bond auctions of late also have been solid, with Thursday's reopening of $12 billion in 30-year bonds producing its second-lowest yield in history. Bond prices and yields move inversely.
The big ETF winner in terms of total inflows has been the iShares Core U.S. Aggregate Bond fund, which tracks all investment-grade bonds across the government and corporate spaces. It has taken in $5.7 billion in 2016 and is up 3.1 percent year to date, which actually slightly trails the S&P 500's 3.4 percent gain. Over the past week, the iShares iBoxx $ Investment Grade Corporate Bond fund has pulled in just short of $430 million and has gained a solid 6 percent year to date, outpacing any of the major stock market averages.