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Income investors weigh long-dated bond funds versus derivative ETFs
The debate comes as fixed income ETF flows are on pace for a record $459 billion annual haul, while long-dated Treasuries remain about 40% below their 2020 total-return peak.
A panel discussion at Future Proof centered on a question facing advisors seeking client income, whether investors are better served by long-dated bond funds or by derivative income ETFs. The discussion highlighted why the long-bond trade has been difficult in recent years. Fixed income has historically acted as a portfolio shock absorber, but long-dated Treasuries have been painful since mid-2020, when Treasuries rallied to historic highs as the Federal Reserve cut rates near zero. Today, the article says those long-dated Treasuries are roughly 40% below their 2020 total-return peak, citing persistent economic resilience, large federal budget deficits, and heavy Treasury auction supply that have kept interest rates elevated.
The panel also compared the role of predictable coupon cash flows from bonds with the appeal of derivative income ETFs. The article notes that for nearly 15 years after the 2008 financial crisis, yields stayed historically low, making traditional income strategies harder to justify, pointing to post-crisis averages for 10-year Treasuries that were below 2%. Still, demand for income-oriented fixed income vehicles appears to be growing, with the piece citing “blazing” fixed income ETF flows targeting a record $459 billion in annual inflows. TMX VettaFi’s Samarth Sanghavi said fixed income works by limiting losses, even as investors weigh alternatives to pure long-bond exposure.