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Bond ETF Flows Reveal Investors’ Defensive Outlook on Growth

This article was originally published on ETFTrends.com.

Bond ETFs continued to attract billions of dollars as more investors take a cautious view on the markets ahead.

For example, the iShares 20+ Year Treasury Bond ETF (TLT) remained one of the more popular plays of the past week, bringing in $515 million in net inflows, according to XTF data. TLT has already attracted close to $1.4 billion in net inflows so far this year while the iShares 7-10 Year Treasury Bond ETF (IEF) saw $1.8 billion in inflows.

As money managers converge at Davos, Switzerland on Tuesday, Axa Investment Managers and JPMorgan Asset management, among others, revealed their preference for long-dated bonds, expressing a slower growth outlook that could cause policy makers in the U.S. and Europe to moderate monetary tightening this year, Bloomberg reports.

“It’s always good to have duration in an environment of downward revisions to growth and inflation,” Alessandro Tentori, chief investment officer at Axa, told Bloomberg. “While investors feared the process of normalization of monetary policy last year - in particular the tapering of quantitative easing - this risk is now being diluted.”

U.S. and China Trade Negotiations

Furthermore, some fear that things could quickly go south again if trade negotiations between the U.S. and China falter.

“If the trade discussions don’t go well then very clearly you want to be in duration and that’s going to help your portfolio,” Karen Ward, chief EMEA market strategist at JPMorgan AM, told Bloomberg, revealing the asset managers have been increasing its duration bets via Treasuries.

The bevy of concerns are already being calculated into forecasts for the year, with the International Monetary Fund cutting expectations for global growth for this year to 3.5%, its weakest level since 2016. China has been a particular cause for concern as the emerging economy registered its slowest expansion since 2009 over the fourth quarter.

“The U.S., Europe, China - all of those will be experiencing a greater level of slowing, probably a great level of disappointment,” Billionaire Ray Dalio said at the Fox Business Network panel at the World Economic Forum.

For more information on the fixed-income market, visit our bond ETFs category.

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