Investors have been pouring money into bonds this year even as central banks around the world are continuing to raise rates. Fixed income experts believe a turnaround could be at hand.
Bond exchange-traded funds took in $104 billion through September, the first time the group has ever topped the century mark, according to State Street Global Advisors, which runs the $564 billion SPDR ETF family.
The cash flight comes even as bonds have significantly lagged the performance of stocks this year. The $50.6 billion iShares Core U.S. Aggregate Bond fund has returned just 1.5 percent year to date, compared to the S&P 500's surge of more than 14 percent.
The allure of a steady income stream and diverse portfolio continues to pull in investor cash to the $40 trillion fixed income space.
"Some of it is the demographic shift and the persistent need for income," said Matthew Bartolini, head of SPDR Americas Research at State Street. "There's more need for a stabler retirement income. It's not unforeseen to see this continued allocation into fixed income, even though rates may be rising."
Bond yields had remained remarkably in check even as the Fed and other central banks seek to exit the cheap-money policies of the financial crisis and its aftermath. Yields shifted in early September, and that has fixed income pros looking for a change in investor appetite.
Investors sent another $11.4 billion into bond ETFs in September. For the third quarter, inflows totaled $32.9, the most of any category, according to Citigroup. However, flows in October show the trend may be turning.