Bond market bulls: Don't panic yet.
Recent outflows in bond-based exchange-traded funds such as the iShares 20+ Year Treasury Bond ETF (TLT) and BlackRock's iShares iBoxx $ High Yield Corporate Bond ETF (HYG) aren't worth worrying about yet, ETF industry leaders say.
The TLT, which trades inversely to bond yields, has seen huge outflows in November, with investors at one point pulling more than $1 billion in net assets out of the long-dated bond fund, according to Bloomberg.
But those worried that bond investing has peaked are overlooking a key piece of the puzzle, says Todd Rosenbluth, senior director of ETF and mutual fund research at CFRA.
"What we're ... missing is that we have more money in bond ETFs going in this year than in equity ETFs. It will be the first time in 10 years we've got more than 50% of the flows going into bond ETFs, [which are] just 20% of the overall pie," he said Monday on CNBC's "ETF Edge."
In fact, 2019 is shaping up to be a banner year for fixed-income ETFs, which saw international and domestic net inflows of over $129 billion as of last week, according to FactSet.
And it's not just short-term traders driving the action, Rosenbluth said.
"We think that you've got tactical investors that are playing the rate market, but you also have core and more target-maturity-oriented products like [in] the BulletShares suite that are continually seeing inflows this year," he said, referring to Invesco's suite of fixed-income ETFs that incorporate a bond ladder strategy, which involves investing in bonds that mature at different times and reinvesting the proceeds.
The chance to deploy that kind of strategy is "crucial" for investors, Invesco's Dan Draper, the firm's global head of ETFs, said Monday in the same "ETF Edge" interview.
"Most of these investors are long-term, buy-and-hold investors who want to be able to have the different cash flows maturing ... in the laddered [portfolio]," Draper said. "High yield broadly in ETFs [has seen] big outflows. We've continued to see inflows into these asset allocators. And, more recently, we launched our new municipal bond BulletShares. Again, [we're seeing] inflows coming in there, historically a less liquid asset class, and trying to bring more tools to investors around that."
In part, the bond market's resilience has been brought about by an accommodative Federal Reserve, which changed course at the start of this year to a rate-cutting cycle rather than what it had forecast as a series of hikes, Tom Lydon, editor and proprietor of ETFTrends.com, said in the same "ETF Edge" interview.
"They've gone 180, where lower interest rates all of a sudden gave investors permission to go out on maturity levels and also lower quality. But now, it's uncertain as far as what's going to go forward," he said.
The TLT fell less than 1% in Thursday trading, as U.S. Treasury yields rose slightly.