BlackRock expects bond ETF assets to hit $5 trillion by end of 2030

BlackRock predicts that bond exchange-traded fund assets globally will hit $5 trillion by the end of 2030, fueled by four trends, one of which involves increased use among institutional investors.

"The global bond ETF industry is growing even faster than we expected," BlackRock said in a paper released Wednesday. "The pandemic era accelerated bond ETF adoption in ways that are self-reinforcing and, we believe, enduring."

BlackRock's iShares launched the first four bond ETFs in the U.S. in July 2002. Nearly 20 years later, bond ETFs as an industry have grown to $1.7 trillion in assets under management and more than 1,400 products globally, according to the paper, "All systems go."

It took 17 years for bond ETF assets to hit $1 trillion, the paper said. Three years ago, as the industry was nearing that milestone, BlackRock predicted that global bond ETF assets would double by the end of 2024, the paper said.

"Yet we believe the global bond ETF industry is poised to reach $2 trillion in 2023 — 18 months early — despite currently challenging macroeconomic conditions," the paper said.

The paper identified the first trend BlackRock expects to drive bond ETF asset growth as "building blocks in evolved 60/40 portfolios." More investors are mixing bond ETFs with active strategies to better achieve investment objectives and avert undesired risks, the paper said.

The second trend, "tools for seeking active returns," involves institutional investors, including active asset managers, that are looking to bond ETFs for the "transparency, access, liquidity, and portfolio efficiency" they offer, the paper said.

"The world's largest and most influential institutional investors became among the fastest-growing adopters of bond (ETFs) based on the resilience and liquidity the products convincingly demonstrated in the early days of the pandemic," the paper said, referring to the COVID-19 pandemic.

Institutional adoption of bond ETFs "is becoming broader and deeper," the paper said.

"Catalysts for modernizing bond markets," was the third trend. Bond ETFs' growth has helped spur advances in electronic trading and algorithmic pricing of individual bonds, which together have helped to enhance transparency and liquidity in underlying bond markets, the paper said.

"The pandemic quickened the pace of ETF-driven market modernization, and we expect bond ETFs will play an even greater role in the way investors access fixed-income markets for the foreseeable future," the paper said.

The fourth trend the paper cited was "increasingly precise sources of potential returns." New bond ETFs are offering more precise fixed-income exposures, which allow investors to create "increasingly customizable portfolios, hedge risks, and capture opportunities," the paper said.

BlackRock had $9.6 trillion in total assets under management as of March 31, including $712.8 billion in fixed-income ETFs.