The May issue of our Bond Fund Intelligence, which was sent to subscribers Wednesday morning, features the stories, "Fidelity Says Shorter Is Better for Bond Funds; 88% of Return," which covers a recent white paper, and "ICI's 2025 Fact Book Reviews '24 Bond Fund Trends, Flows," which looks at the latest stats on the fund industry. BFI also recaps the latest Bond Fund News and includes our Crane BFI Indexes, which show that bond fund returns inched higher in April while yields were also higher. We excerpt from the new issue below. (Contact us if you'd like to see our latest Bond Fund Intelligence and BFI XLS spreadsheet, or our Bond Fund Portfolio Holdings data.)
BFI's lead article states, "Fidelity recently published, 'The opportunity for short and intermediate bond funds.' They say, 'Many investors face a conundrum in 2025: Adding long-term bonds for diversification versus equities makes sense, but this could introduce unwanted volatility over the long term due to interest-rate risk. One way to potentially reduce this risk is by investing in short and intermediate investment-grade debt funds. Since 2012, these funds, on average, have generated 88% of the return of longer-term core bonds with 52% less volatility. Why? The comparatively shorter-term securities in which short and intermediate bond funds invest have shown less sensitivity to movements in interest rates and spreads over time.'"
It continues, "Michael Scarsciotti, head of the investment specialists at Fidelity Investments, comments, 'Short and intermediate bond funds might offer their most compelling storyline since 2008 -- a potential return advantage, relatively low volatility, and some of the highest starting yields in 17 years.'"
Our "Fact Book" article states, "ICI's new '2025 Investment Company Fact Book' contains a review of the bond fund marketplace in 2024 and a wealth of statistics on bond funds. They write, 'Net inflows into bond funds more than doubled in 2024 to $1.4 trillion <b:>`_… Investor expectations that central banks would soon begin lowering official interest rates likely drove this demand. `Monetary policy is important because when interest rates fall, bond prices rise and vice versa. As such, fixed-income investors stand to gain from a reduction in interest rates. Like the experience with equity fund returns and flows, net flows to bond funds have historically been related to bond returns. Additionally, in a falling rate environment, investors may move more assets into bond funds to 'lock in' higher yields.'"
It continues, "ICI's section on 'Bond Mutual Funds' (on page 49) explains, 'Bond mutual fund net new cash flows typically are correlated with the performance of US bonds, which, in turn, is largely driven by the US interest rate environment. In 2024, bond mutual funds faced significant interest rate volatility, as long-term interest rates fluctuated widely throughout the year. The yield on the 10-year Treasury started 2024 at 3.9 percent, increased to 4.7 percent in late April, and then retreated to as low as 3.6 percent in September before bouncing back to 4.6 percent at year-end. A variety of factors, including inflation uncertainty, an evolving economic outlook, and shifting expectations of monetary policies, contributed to these fluctuations.'"
Our first News brief, "Returns Inch Higher, Yields Up in April," says, "Bond fund returns were higher in April after falling in March. Our BFI Total Index rose 0.13% over 1-month and rose 6.30% over 12 months. (Money funds rose 4.75% over 1-year as measured by our Crane 100 Index.) The BFI 100 increased 0.36% in April and rose 7.49% over 12 mos. Our BFI Conservative Ultra-Short Index was up 0.25% over 1-month and 5.30% for 1-year; Ultra-Shorts rose 0.33% and 5.77%. Short-Term returned 0.56% and 7.18%, and Intm-Term rose 0.29% in April and 7.92% over 12 mos. BFI's Long-Term Index was flat (0.00%) and up 7.81%. High Yield returned -0.05% in April and 6.80% over 12 mos.
A second News brief, "MarketWatch Says 'Bond Funds Back in Demand.' They write, 'Strong investor demand for U.S. bond funds returned last week, in sharp contrast to outflows seen over the past month as investors grappled with uncertainty surrounding President Donald Trump's April 2 tariffs.'"
Our next News brief, "Bloomberg's 'Bond Mutual Funds See Biggest Outflows Since 2022 as ETFs Gain,' tells us, 'In April's tariff-driven market turbulence, investors yanked roughly $60 billion from fixed-income mutual funds, while bond ETFs overall weathered the storm.'"
A BFI sidebar, "IBD: BFs Outside US Up," tells us, "Investors.com writes, 'Even U.S. Bonds Are Falling Behind The Rest Of The World.' They state, 'It's not just U.S. stocks that are falling behind the rest of the world. America's bonds and bond ETFs are trailing, too. IShares Core U.S. Aggregate Bond (AGG), the giant bond ETF with more than $122 billion in assets, has only returned 1.55% this year, says Morningstar Direct. That ranks it just 105th out of the 400 actively traded bond ... ETFs tracked by Morningstar.'"
Finally, another sidebar, "MStar on Foreign Debt in BFs," says, "Morningstar writes that, 'Foreign Debt Spices Up Multisector Bond Funds.' It says, 'Investors don’t have to look too hard for income in the multisector bond Morningstar Category -- more than half the distinct strategies in this peer group tout 'income' in their names. In general, these funds deliver big yields. As of March 2025, the average multisector bond category fund yielded 5.4%. That compared favorably with figures from more-docile bond categories like intermediate core bond's 4.1% or even intermediate core-plus bond's 4.5%.'"
