Surge in Bond ETFs Amidst Fed Rate Cuts

Launches of bond-focused exchange-traded funds (ETFs) have nearly doubled year-over-year in 2024, driven by expectations of Federal Reserve interest rate cuts. Nearly 120 bond ETFs have been launched this year, up from 79 in 2023. Investors are capitalizing on falling yields and multi-decade high yields before they decline further.

The number of bond-focused ETF launches has almost doubled in 2024 compared to the previous year. Data from CFRA and Strategas reveal a substantial uptick driven by expectations of interest rate cuts by the Federal Reserve.

This year has seen nearly 120 bond ETFs introduced, a significant rise from the 79 launched by September 2023, according to Strategas. Bond products now account for 46% of all ETF debuts this month, up from an average of around 20% throughout 2024. New product offerings range from municipal bonds to high yields and collateralized loan obligations.

'There are issuers recognizing fixed income as a burgeoning trend with potential for innovative products,' said Todd Sohn, head of ETF analysis at Strategas. This surge is fueled by the anticipation of further rate cuts by the Federal Reserve, which started with a 50 basis point reduction last week and expected additional reductions totaling 150 basis points by the end of 2025. Falling rates generally benefit bonds as they push down yields, which inversely affects bond prices, leading investors to lock in current high yields. Average monthly net inflows into U.S. bond ETFs have also hit record levels, according to Strategas.

(With inputs from agencies.)