Continued volatility in bond markets has dented bond returns and investor sentiment.

• Sovereign bonds across in Europe and the US cut year to date gains
• HY bonds held up amid the sovereign bond selloff; both US HY and EU HY posted positive total returns
• Global fixed income ETFs lost AUM $666m last month

Market movements

Volatility grips eurozone

• A volatile start to the month saw sovereign bonds in the eurozone selloff. Across the three major currencies, only UK gilts provided positive performance, returning 0.4%. German bunds and US treasuries returned -1.1% and -0.3% respectively.
• European sovereigns bonds in the core (Germany and France) outperformed those in the periphery (Italy, Spain, Portugal and Ireland), but total returns lag year to date (ytd).
• Markit iBoxx € Corporates lost 0.46% on the back of negative credit return (-31bps). Spreads in Markit iBoxx € High Yield increased in March, leaving the total return flat at 0.15%. € High Yield B remains the best returning European rating bucket, up 4.98% this year.
• European ABS saw a positive return last month of 1.62%, now up 6.45% ytd, higher than European corporates and sovereigns.
• US HY held up better than US IG, with total returns for the month at 0.1% and -0.5% respectively.
• US HY and US sovereigns were positively correlated last month (0.22), whereas one year correlation shows a negative trend (-0.25).
• In emerging markets, Russian bond returns slowed last month as oil prices stabilised, but remains 21.3% in the positive ytd.
• Inflation linked bonds across the three major currencies saw negative returns, with Germany returning -2.3%, they remain positive ytd.

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ETF market activity review

Fixed income ETFs see rare monthly outflows

• Global fixed income ETFs saw $666m of outflows last month, but AUM remains $45.6bn up ytd
• The US fixed income ETF market experienced outflows of $84m during May. Treasury ETFs saw outflows of $2.1bn. The iShares Short Treasury Bond ETF experienced $1.7bn of outflows.
• European fixed income ETFs also saw overall outflows of $899m last month. Sovereign, Corporates saw the largest outflows; $544m and $522m respectively. Investors were however attracted to HY, as the iShares $ High Yield Corporate Bond UCITS ETF saw $229m of new inflows.
• In contrast to the US and Europe, fixed income ETFs exposed to Asia saw $317m in net inflows

Top 10 Fixed Income ETF providers by positive inflows in May ($mm)

• Chinese issuer Fortune was able to attract the biggest chunk of total inflows to its fixed income ETFs in May when it attracted $740m of net inflows

New ETF launches in May

• May saw four new ETF issuances in the US and Europe.
• PIMCO was the most prolific new issuer, launching two new products; the PIMCO Euro Short Maturity Accumulation Source UCITS ETF and PIMCO Short-Term High Yield Corporate USD acc Bond Index Source UCITS ETF.

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This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.