3 days ago
Fixed Income ETF Assets Hit Record $2T
What do fixed income ETFs have in common with the Department of Government Efficiency?
The answer, given away by the headline above, is $2 trillion. Not only is that the amount the Elon Musk-convened group (hoped to) cut from the federal budget, but it's also the size of the US fixed income exchange-traded fund market. On a fun note, 2 trillion is also the most recent estimate of the number of galaxies in the observable universe. The US fixed income ETF business reached that milestone in June, following a flood of assets into products this year.
'$2 trillion is pretty noteworthy,' said Matthew Bartolini, head of Americas ETF research at State Street Investment Management. 'It's not being fueled by one single factor — there are multiple drivers.'
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With $186 billion flowing into fixed income ETFs in the first half of 2025, the products got 34% of the total ETF sales, Bartolini noted. 'That is double what their market share would indicate.' Fixed income ETFs also saw record sales in June, taking in $18 billion, with only one subcategory, long-term government bond ETFs, seeing net outflows, he said. The most obvious factor in recent demand for fixed income ETFs is yield, said Daniel Sotiroff, senior analyst on the passive strategies team at Morningstar. Compared with the yields in the 2010s, when interest rates were near zero, the 4% or 5% yields today are a big improvement, he noted. 'The yield on my savings account is pretty dismal,' he added. 'That makes even something like a Treasury bill ETF more attractive.'
Other contributors to growth overall are advisors outsourcing investment decisions via model portfolios and asset-allocation products, as well as an increased appetite for income, he said. 'We used to talk about dividend ETFs six or seven years ago … but increasingly, that conversation is going toward fixed income funds.'
According to Morningstar Direct data, these are the fastest-growing fixed income ETFs this year through May:
By net sales, the iShares 0-3 Month Treasury Bond ETF led the way, taking in $17 billion, followed by the SPDR Bloomberg 1-3 Month Treasury Bill ETF, at $7 billion, and Schwab Mortgage-Backed Securities ETF, at $5 billion.
But by organic growth, or net flows as a proportion of total assets, the biggest seller was the Schwab Mortgage-Backed Securities ETF, at over 10,000% growth, followed by the T. Rowe Price QM US Bond ETF, at 1,200%, and JPMorgan BetaBuilders US Treasury Bond 1-3 Year ETF, at 930%.
Actively Recruiting: Active management is also behind much of the recent demand and product development. Almost all of Vanguard's fund launches over the past couple of years have been fixed income ETFs, many of which are active, Sotiroff noted. That firm filed this week for the Vanguard High Yield Fixed Income ETF, following recent launches in that category by Capital Group and JPMorgan. Unlike with equities, fixed income has been an area where a significant number of shops have been able to outperform, Sotiroff said.
'It is an area where active managers can actually add some value,' he added.
This post first appeared on The Daily Upside. To receive exclusive news and analysis of the rapidly evolving ETF landscape, built for advisors and capital allocators, subscribe to our free ETF Upside newsletter.
