Rob Kapito, BlackRock

BlackRock report predicts bond ETFs to reach USD2 trillion in five years


BlackRock has published a report today on the pace of bond ETF adoption around the world, entitled ‘The path to USD2 trillion’.

BlackRock writes that global bond ETF assets topped USD1 trillion in June 2019, a growth milestone that highlights how far they have come in their first 17 years, the firm says. BlackRock expects the pace of adoption to accelerate and global bond ETF assets will double, to USD2 trillion, by 2024.

The secular trends explored in the paper include: Breaking the habit: Institutional and wealth managers are moving from a binary to a ‘whole portfolio’ approach that focuses first on desired outcomes, then on an asset allocation and only then on the most efficient way to implement. 

Growing adoption by institutional investors: the increasing cost of capital since 2008 is leading  institutions—pension funds, asset managers, and insurance companies— to rely on bond ETFs for quick, efficient market access. 

The bond market modernises: Bond trading as a percentage of debt outstanding has declined in the post-crisis, dealer-centric world, as market participants look to ETFs and electronic trading to help improve liquidity.

Innovation opening new doors: New bond ETF exposures will add convenience for investors, providing new tools for customisation, driving further adoption of Bond ETFs. 
 
BlackRock reports views from the industry, writing: “This industry milestone and outlook speaks to the robust ecosystem that provides the liquidity and ease of trading that many investors seek out to hold ETFs as core or tactical allocations.”

Conor Davis, EMEA Head of Investor Sales at Citi writes: “We welcome the growth of bond ETFs as a key way to improve liquidity in the underlying markets. Our research highlights that fixed income ETF ecosystem advances have set the stage for further significant growth over the next five years. We were early adopters of this trend and are pleased to support BlackRock's continuing efforts to develop pioneering and innovative products for fixed income investors.”

Aymeric Paillat, Head of Global Credit Indices and Global Credit eTrading, J.P. Morgan writes: “Fixed income ETFs alongside other macro credit products have seen dramatic growth in the last five years as market participants continue to focus on liquidity and ease of execution. High correlation between individual credits, low default rates and pressure on costs amplify this trend.    As a result, J.P. Morgan continues to invest heavily in the fixed income ETF ecosystem, leveraging its strong fixed income franchise and risk capacity across execution, primary activity, options and other services.”

Matt Berger, Global Head of Fixed Income and Commodities, Jane Street writes: “Jane Street was among the first firms to trade fixed income ETFs when they launched in 2002. Since then, we've seen a dramatic increase in the assets under management and trading volume of these unique investment vehicles. In just the last two years, we've seen a 50 per cent increase in the dollar volume of trades.  We regularly see single trades of more than USD200 million for high-yield and emerging market bond ETFs, and we've seen trades of more than USD500 million for investment grade bond ETFs.   To meet investors' growing demand for liquidity, we've built out a dedicated team of more than 50 fixed income specialists across our primary offices in New York, London and Hong Kong."

Rob S. Kapito, BlackRock President, (pictured) writes: “Having spent more than 35 years in fixed income, I see bond ETFs as a game-changing technology because of how these products can bring convenience and transparency to a historically hard-to-access asset class. Their straightforward format—an ETF is bought and sold on exchange—lets investors manage diversified bond holdings simply and efficiently. Today, bond ETFs offer a rich diversity of exposures and good value…Taken together, these secular forces will accelerate the bond ETF market. All investors stand to benefit.”

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