Bond ETFS and the path to US$2 trillion
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Bond ETFs and the path to US$2 trillion

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Bond ETFs have transformed how all investors access fixed income markets. But the movement is only beginning. It took nearly two decades for bond ETFs to surpass US$1 trillion in global assets. We believe the next leg of growth will be swifter and broader, with bond ETFs surpassing US$2 trillion by the end of 20241.

Simple, efficient and transparent access to opaque global bond markets

Until the first bond ETFs were pioneered in 2002, ordinary investors had few low-cost options for building diversified bond portfolios on their own, especially in areas such as corporate and emerging-market debt. It was either use a broker—who could spend hours or longer working with Wall Street dealers—or invest in a mutual fund. The first bond ETFs gave all investors efficient, convenient tools for targeting fixed income assets on each trading day.

Global bond markets today

Fast-forward to today and global bond ETF assets are growing 22% annually, more than three times the rate of open-end bond funds2. Today, more than 1,300 bond ETFs trade across the globe3.

Runway for bond ETF growth

Even at US$1 trillion, bond ETF assets represent less than 1% of the US$105 trillion global fixed income marketplace.4 Growth is set to accelerate as all types of investors, from individuals to wealth managers to institutions, use bond ETFs in more and different ways. Today individual bonds are held largely by banks, central banks, and corporations—market participants that are just beginning to adopt bond ETFs.

How much and how fast will the bond ETF industry grow?

BlackRock believes that global bond ETF assets are well positioned to double, to US$2 trillion, by the end of 20245—thanks to four long-term trends:

How much and how fast will the bond ETF industry grow?

Trend #1: An evolution in portfolio construction

Early adopters used bond ETFs as buy-and-hold positions that replaced individual bonds, higher-cost mutual funds and separately managed accounts6.

Today, more investors are recognizing that, just as with stocks, bond ETFs are an efficient way to access different sources of potential return and manage risk. Individuals tend to use bond ETFs to build diversified portfolios across multiple asset classes, and term maturity bond7 ETFs to help generate income. Professional portfolio managers can use high yield bond ETFs alongside individual securities in actively managed funds8. Hedge funds can use ETFs for targeted long and short positions.

Most often, bond ETFs make it easy to build and manage fixed income allocations.

Trend #2: Growing adoption by institutional investors

Institutions—pension funds, asset managers, and insurance companies—may rely on bond ETFs for quick, efficient market access.

Significant adoption by these investors traces back to 2008, when banks and broker-dealers pulled back from bond market-making amid the global financial crisis and its aftermath. Post-crisis regulation had increased the cost of capital, and investors found trading volumes and liquidity diminished just when they were needed most.

In contrast, bond ETFs traded continuously on exchange throughout and after the crisis, providing large investors with a much-needed alternative.9 Institutional adoption drove higher trading volumes, which in turn provided the foundation for today’s liquid bond ETF market.

Trend #3: Modernization of the bond market

Bond trading has declined after the financial crisis, and investors have looked to ETFs and electronic trading to help improve liquidity. The bond ETF ecosystem has also evolved to enable rapid pricing and execution of individual bonds and, importantly, bond portfolios. Together these forces are contributing to a universe of bonds that are priced and traded daily—a virtuous circle that will support the growth of both bond ETFs and digital first transactions. These developments support future bond ETF growth, as well as entrench bond ETFs as part of a vibrant fixed income marketplace.

Global electronic average daily trading volume

Global electronic average daily trading volume

Source: MarketAxess as of December 2018.

Trend #4: Constant ETF innovation

Finally, innovation runs strong as new types of bond ETFs emerge.

Demand for sustainable bond ETFs will likely grow as more people seek to match their personal values with their investments. More bond ETFs will incorporate environmental, social, and governance (ESG) inputs into their methodologies, or target green bonds used to fund sustainable projects, such as solar panels and clean transportation.

More investors are also likely to turn to the convenience of bond ETFs that seek to neutralize interest rate and currency risks. Currency-hedged bond ETFs, for example, can help investors dampen unintended volatility that comes with owning international bonds 10.

Innovations in factor-based11 bond ETFs, now in the early stages, will continue to provide investors with new ways to calibrate portfolios, for instance by helping investors seek to balance credit and duration risk, or select bonds according to financial traits such as quality and value.

The way investors will use bonds in future

For all investors, bond ETFs offer transparent, simple and effective ways to assemble diversified bond portfolios. We believe the benefits will become clear to more and more investors, and the next leg of growth will be swifter and broader, with bond ETFs surpassing US$2 trillion by the end of 2024.1.

As with all innovative technologies, bond ETF adoption will be driven by greater recognition of their versatility and convenience. We envision a not too-distant future in which individual investors move beyond individual bonds, and more asset managers pursue active fixed income strategies with index tracking ETFs as building blocks.


  1. BlackRock (as of June 2019).
  2. Morningstar (as of May 2019); bond ETF annualized growth rate of 21.9% compares with open-end mutual fund growth rate of 6.5% in the five years ended Dec. 31, 2018.
  3. Source: BlackRock (as of May 2019).
  4. Bank of International Settlements (as of Dec. 2018).
  5. BlackRock (as of June 2019).
  6. BlackRock, “Transforming the Bond Markets With Fixed Income ETFs,” 2012.
  7. With bonds, term to maturity is the time between when the bond is issued and when it matures, known as its maturity date, at which time the issuer must redeem the bond by paying the principal or face value.
  8. PwC, “Embracing Exponential Change,” 2017.
  9. BlackRock, “Transforming the Bond Markets With Fixed Income ETFs,” 2012.
  10. Currency hedging is sometimes done as part of a fund’s main investment strategy or within share classes. Currency hedged share classes and funds use derivatives to hedge currency risk. The use of derivatives for a share class could pose a potential risk of contagion (also known as spill-over of risk and liabilities) to other share classes in that fund.
  11. Factor investing is an investment approach that involves targeting specific drivers of return across asset classes.
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