The January issue of our Bond Fund Intelligence, which was sent to subscribers Friday morning, features the lead story, "Top Stories & Funds of '21: Record Assets; But '22 Cloudy," which reviews some highlights of the past year and "Worldwide BF Assets Rise to $13.6 Trillion, Led by U.S.," which takes a closer look at bond fund markets outside the U.S. BFI also recaps the latest Bond Fund News and includes our Crane BFI Indexes, which show that bond fund returns rose in December and yields jumped. 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. Start making plans too for our Bond Fund Symposium, which will take place March 28-29 in Newport Beach, Calif.)
BFI's "Top Stories" piece reads, "While 2021 was another good year for bond funds, it appears the party may finally be coming to an end. Bond funds and bond ETFs once again experienced strong inflows, as bond funds broke above $5.6 trillion and bond ETFs broke above $1.2 trillion. But returns were almost entirely erased in the closing weeks of the year as the market prepares for Fed rate hikes in 2022. Below, we review last year's top stories from BFI, and also list the top-performing funds from 2021."
It continues, "Bond fund assets saw their second straight year of $500 billion plus and double-digit asset gains. They stood at $5.630 trillion as of Nov. 30, 2021, up $507.8 billion, or 10.0%, from a year earlier, according to ICI data. Bond ETFs totaled $1.213 trillion on 11/30/21, up $175.1 billion, or 16.9%, over 12 months. (Bond fund assets fell by $14.7 billion while Bond ETFs rose by $12.2 billion in December, according to our BFI.) We show bond funds averaging returns of 0.76% in 2021, after returning 5.19% in 2020 and -7.46% in 2019."
The Worldwide article states, "Bond fund assets worldwide increased moderately in the latest quarter to $13.6 trillion, led by the four largest bond fund markets -- the U.S., Luxembourg, Ireland and Germany. We review the ICI's 'Worldwide Open-End Fund Assets and Flows, Third Quarter 2021' release and statistics below."
ICI tells us, "Globally, bond funds posted an inflow of $337 billion in the third quarter of 2021, after recording an inflow of $304 billion in the second quarter. Inflows from balanced/mixed funds worldwide totaled $175 billion in the third quarter of 2021, compared with $120 billion of inflows in the second."
Our article adds, "According to Crane Data's analysis of ICI data, the U.S. had $6.788 trillion in bond fund assets as of Sept. 30, 2021, representing 49.8% of the worldwide market. U.S. bond fund assets were up $131.0 billion in the quarter, or 2.0%. Over the past year, U.S. bond fund assets increased by $824.6 billion, or 13.8%."
Our first News brief, "Returns Rebound, Yields Jump in Dec," comments, "Bond fund yields surged higher and returns also rose last month. Our BFI Total Index gained 0.20% over 1-month but rose just 0.76% over 12 months. The BFI 100 returned 0.16% in Dec. and 0.73% over 1-year. Our BFI Conservative Ultra-Short Index was down 0.01% for 1-month but flat (0.00%) for 1-year; Ultra-Shorts rose 0.03% and 0.32%, respectively. Short-Term increased 0.02% and 0.26%, and Intm-Term rose 0.00% in Dec. and fell 0.25% over 1-year. BFI's Long-Term Index fell 0.20% in Dec. and fell 0.80% over 1-year. Our High Yield Index rose 1.41% in Dec. and gained 4.76% over 1-year."
We also quote from "Morningstar's '2021: The Year in Bond Funds.' They write, "Bond markets had to contend with a rocky 2021 characterized by rising inflation, a bumpier economic recovery, and the start of tighter monetary policy. The threat of inflation gathered pace over the year, unnerving government-bond markets in the process and culminating in the Federal Reserve's hawkish pivot in the fourth quarter. Meanwhile, the stretch for yield that began in 2020 continued, with lower-quality credit surging for much of the year."
A third News brief is headlined, "The WSJ Says, 'ETFs Claim More of Muni Market.'" They tell us, "Municipal bond investors are piling into exchange-traded funds, attracted by low costs and the ability to trade quickly. Muni ETFs held $80 billion as of the end of the third quarter, up from less than $50 billion two years ago, Federal Reserve data shows. Citigroup projects they will hold $125 billion by December 2022.... ETF sponsors such as BlackRock Inc. report that muni ETFs have helped bring in client cash."
Yet another News brief, "Bloomberg Asks, '`What Happens When Bonds Lose Money?' explains, "Early January is when many investors give their portfolios a checkup, and this year a sting awaits from the bond market. While equity returns dazzled in 2021, 'safe' government bonds registered their first negative return since 2013.... Except the sanctuary of government bonds cracked last year, with the Bloomberg Treasury index providing a total return of -2.3%. A broader exposure to fixed income that includes debt from high-quality companies, the Vanguard Total Bond Market Index Fund, lost 1.67% last year, its first down year since 2018 <b:>`_ -- the last time the central bank raised its key overnight interest rate."
A BFI sidebar, "Federated Launches ETFs," quotes a press release that tells us, "Federated Hermes ... launched the Federated Hermes Short Duration Corporate ETF and Federated Hermes Short Duration High Yield ETF.... These short-duration ETFs are new tools for investors concerned about inflation and the potential interest-rate risk associated with products that invest in longer-duration securities."
Finally, another sidebar, "Bond Funds Hit Record $5.6T," tells readers, "Bond fund assets inched up to a record $5.6 trillion and bond ETFs hit a record $1.213 trillion last month. But outflows and losses have appeared in recent days. ICI's 'Combined Estimated Long-Term Fund Flows and ETF Net Issuance' comments, 'Bond funds had estimated inflows of $9.47 billion for the week, compared to estimated inflows of $888 million during the previous week. Taxable bond funds saw estimated inflows of $7.78 billion, and municipal bond funds had estimated inflows of $1.69 billion.' Over the past 5 weeks, bond funds and ETFs have seen inflows of $3.6 billion."
