Data from a Morningstar report noted that May saw strong inflows for taxable bond funds, confirming the broader trend of bond funds seeing heightened interest within the past year.
“Taxable-bond funds are on a roll,” the report said, noting that funds took in “$430 billion from January 2023 through May 2024, scoring inflows in all but one month over that span. Meanwhile, all other US funds collectively bled $133 billion. How bond-fund investors have fared depends largely on when they jumped in. The Morningstar US Core Bond Index climbed 5.3% in 2023 but slid 1.5% in 2024 through May.”
The expectation of lower interest rates could be spurring investors into bonds, allowing them to take advantage of yields now before they eventually fall following rate cuts by the U.S. Federal Reserve. Additionally, even as yields fall, investors will also reap the rewards of price appreciation given that yields move conversely with bond prices.
Taxable-Bond Flows
Source: Morningstar Direct Asset Flows. Data as of May 31, 2024.
Based on the Morningstar data, all different types of bond funds saw inflows, ranging from various levels of credit risk as well as duration. Intermediate government and global bonds, in particular, saw the strongest inflows in May and overall this year.
“Seventeen of the 23 taxable-bond Morningstar Categories have notched inflows so far in 2024,” the report added. “Several of those categories oppose one another: ultrashort- and long-term, government and high-yield corporate, global and US-only have all made out well. Short-term and inflation-protected funds are the outliers, but even their outflows are far milder this year than last.”
Year-to-Date Taxable-Bond Category Flows
Source: Morningstar Direct Asset Flows. Data as of May 31, 2024.
Intermediate and Global Options
Given the interest in intermediate and global bond funds, Vanguard has a few options to consider. For an overall intermediate option, there’s the Vanguard Intermediate-Term Bond ETF (BIV).
BIV tracks the Bloomberg U.S. 5–10 Year Government/Credit Float Adjusted Index. That is a market-weighted bond index that covers investment-grade bonds with a dollar-weighted average maturity of five to 10 years.
To stay within the safe confines of U.S. government debt via Treasuries, consider the Vanguard Intermediate-Term Treasury ETF (VGIT). The fund focuses on Treasury notes that fall within that five to 10-year maturity-date window.
For an international option, consider using the Vanguard Total International Bond Index Fund ETF Shares (BNDX). The fund seeks to track the performance of the Bloomberg Global Aggregate ex-USD Float Adjusted RIC Capped Index. Its portfolio is primarily investment-grade debt, so credit risk is minimized.
For more news, information, and analysis, visit the Fixed Income Channel.