HUNTING FOR TREASUR(IES)

As tariff-driven uncertainty continues to drive market movements, this month, we dive deeper into the global diversification theme which has caught the attention of investors, and explore the opportunities that high quality global government bonds present.

The world is your oyster

Despite recent headlines, US Treasuries have continued to attract consistent inflows this year, reinforcing their role as a core allocation in global investor portfolios given the depth of the market and apparent weight in global indices. However, amidst rising volatility in US treasuries and a weakening USD, investors are increasingly seeking diversification via global treasuries, which have seen a strong tide of inflows this year relative to 2024 (Figure 1), given the relative returns against US Treasuries (Figure 2).

Notably, the majority of positive returns from global treasuries this year have been driven by FX (Figure 3), where the DXY Index, a commonly used benchmark for USD strength, has seen an 8.4% decline this year. For USD-based investors, taking unhedged currency exposure could allow them to participate in potential FX upside in a more benign USD environment, a trend reflected in a flow pickup to unhedged Global Agg ETF share classes since April (Figure 4).

A closer look at global treasuries

Today, a broad global treasury ETF provides a one-ticker solution to a key Global Agg building block – accessing a market $39T in size, while offering high quality, diversified exposure to over 45 countries and 1900 government bonds.

EUR treasuries, which comprise over 20% of the exposure, have the backing of stronger macro tailwinds and a European Central Bank with more room to ease relative to the Fed, while including a 4.5% allocation to German Bunds, the largest of the few AAA government bond names left in the market.

Source: BlackRock, as of 31 May 2025.

Innovation Meets Opportunity

How years of constant fixed income ETF innovation are empowering investors to navigate today’s markets and build portfolios for the new era Last year, our whitepaper “No Time to Yield” discussed why investors may want to consider getting cash off the sidelines and employing bond ETFs in the new market regime.

In our latest paper “Innovation Meets Opportunity”, we highlight how accelerating bond ETF innovation has equipped investors with a robust ETF toolkit that simply did not exist the last time yields were at these levels, and how investors can use bond ETFs to navigate both today’s and tomorrow’s market environments.

Did you know?

1. Client demand for fixed income ETFs is driving significant asset growth with record flows in 2024 and on track to reach $6 trillion in assets under management (AUM) by 2030, if not sooner. Globally, bond ETFs experienced the highest organic asset growth (20%) of any other asset class or investment vehicle last year. And so far in 2025, client adoption continues to accelerate, with assets up 22% on an annualized basis.

2. The flywheel of bond ETF innovation is powering this growth, helping more investors to access exposures and outcomes that were previously difficult to access. Last year a record 420 bond ETFs were launched, enabling investors to tailor their fixed income investments in ways previously unthinkable.

3. The ever-increasing toolkit allows investors to take advantage of a generational opportunity in fixed income. Yields are higher than they have been in 20 years. Globally, some 80% of fixed income assets now yield over 4% and we believe they’ll remain elevated for the foreseeable future.

4. iShares has been spearheading innovation in bond ETFs for over two decades. Our diverse and evolving product set supports clients globally to navigate across market environments, with more modern, precise ways to reach nearly every part of the fixed income market. As the experts in portfolio construction with a strong heritage in risk management, we understand the tools and exposures that investors require to thrive in a changing world.

Source: BlackRock, “Innovation meets opportunity”, as of April 2025. There is no guarantee that any forecasts made will come to pass

Index Your Bonds with Asia Credit

Asia bond markets definitely have a part to play in the next leg of growth in index and ETF adoption. As investors continue to move beyond the “active versus passive” debate, constant product innovation will offer increasingly precise sources of potential returns, and help lead more investors to embrace bond index building blocks alongside high conviction active strategies in pursuit of optimal portfolio outcomes.

In this Asia-focused “Index Your Bonds” paper, we spotlight iShares Asia Credit exposures, provide insights on how they are managed in practice, and discuss how innovations such as ESG integration will make indexing an integral part of investing in Asia fixed income.