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The fixed income ETF surge: What’s fueling the momentum?

US-listed fixed income ETF assets have grown at an annualized rate of 33% since 2002, nearly reaching the $2 trillion mark in June 2025.¹ Globally, fixed income ETF assets have surpassed $2.7 trillion year to date.² And, according to a recent Cerulli survey, fund managers believe fixed income ETFs will be a major driver of ETF asset growth.³

July 23, 2025 4 min read

William Ahmuty

Head of SPDR ETF Fixed Income

Unlocking liquidity with ETFs

Fixed income ETFs offer investors exposure to a wide range of debt securities, combining the benefits of bonds—such as income generation and risk mitigation—with the flexibility, transparency and, most importantly, the liquidity of the ETF wrapper.

ETFs offer significantly more liquidity than the underlying bonds because ETFs have two layers of liquidity, from:

Primary market creation and redemption
Secondary market trading on exchanges

This superior liquidity facilitates trading in markets that may be less liquid at the individual bond level, setting ETFs apart from traditional bond portfolios and mutual funds, where trading illiquid bonds can be costly and time-consuming.

While the first fixed income ETFs were broad index funds, today ETFs cover all corners of traditional bond market sectors—investment-grade credit and high yield, to municipals, senior loans, and emerging market debt. But this evolution has also paved the way for greater fixed income innovation, like the introduction of private credit ETFs and the popularization of active fixed income ETFs. This wide range of exposures has helped create a more centralized and transparent fixed income marketplace.

Rate volatility continues to drive bond ETF demand

Where might the next wave of fixed income growth come from? With increased geopolitical and policy uncertainty injecting a dose of volatility into markets, investors continue to gravitate to the relative safety and reliability of money market funds and ultra-short term bonds.

In 2024, US money market funds saw $852 billion in inflows, pushing assets to north of $7.2 trillion.⁴ Net inflows have continued into 2025 due to money market funds’ comparatively higher yields and the Federal Reserve (Fed) holding rates steady. And ultra-short term bonds experienced $52 billion in inflows, bringing assets to $392 billion by December 31, 2024.⁵ But when the Fed begins cutting interest rates, the direction of these inflows is likely to reverse.

With cash-like exposures exposed to these rate volatility challenges, what fixed income asset classes might attract investors? Active core bond ETFs and a mix of short and intermediate investment-grade bond ETFs will likely see inflows from investors seeking reliable income with greater stability. And private credit as a fixed income replacement could gain traction among investors looking for more income and greater portfolio diversification.

Record inflows into active funds

In the US, active funds attracted more than 37.9% of US fixed income ETF inflows so far in 2025.⁶ I expect active bond ETFs—which provide investors the ability to adjust duration, credit quality, and sector exposure in real time to capitalize on market conditions—will continue to garner major market share and bring value to portfolios in a range of ways, from core and core-plus strategies to satellite exposures:

Core and core-plus strategies: These strategies usually blend traditional and non-traditional fixed income asset classes to pursue the highest possible return over a full market cycle. With the flexibility to invest in mispriced securities, through active sector allocation and security selection, these strategies may offer better protection against interest rate risk and credit risk than benchmark-linked core or aggregate bond strategies.

Satellite exposures: These exposures are typically more targeted fixed income allocations that complement a portfolio’s core holdings. Focused on specific sectors like high yield, emerging markets, or securitized debt, satellite strategies are often used to enhance yield, diversify risk, or express tactical views in response to evolving market conditions.

Thrifty titans: Low-cost bond ETFs

On the opposite end of the fixed income ETF spectrum, low-cost fixed income ETFs are attracting substantial assets. In fact, low-cost fixed income ETFs have accounted for 43% of all inflows so far this year.⁷ That’s no surprise given that fees for fixed income ETFs are 58% lower than their mutual fund peers.⁸ Fixed income ETFs’ median net expense ratio is just 0.29% versus 0.70% for mutual funds. Active fixed income ETFs’ median net expense ratio is also lower than for active mutual funds, 0.39% versus 0.70%.⁹

Of course, it’s important to consider the total cost of ownership (TCO)—the expense ratio plus trading and holding costs—for any investment. And, in addition to reducing operating costs, which lowers the expense ratio, ETFs’ unique creation and redemption process also works to reduce TCO because:

ETFs offer two markets for trading, both primary and secondary, so they provide greater liquidity to support quick reallocation of portfolios or the ability to meet investor redemptions.
ETFs tend to distribute fewer capital gains than mutual funds, so they tend to be more tax efficient. In 2024, the number of mutual funds paying capital gains represents 43% of all mutual funds and 39% of all mutual fund assets under management (AUM).¹⁰ The number of ETFs paying capital gains represents a small 5% of all ETFs and an even smaller 0.77% of all ETF AUM.¹¹
ETFs have high trading volumes, which reduces bid-ask spreads and improves liquidity. In 2024, the trading volume for low-cost ETFs was $5.5 trillion.¹²

The next wave of fixed income innovation

The current popularity of active and low-cost ETFs aside, in the future investors are likely to see the emergence of increasingly precise ETF exposures around key fixed income asset classes—investment-grade public and private credit, high-yield debt, securitized products, and CLOs. And as bond yields hover near their highest levels in a generation, I believe there is a real opportunity for outcome-oriented ETFs to drive growth, specifically income funds and exposures that deliver relatively high distributions.

Keep pulse on the latest global fixed income trends

As fixed income ETFs continue to hit new AUM highs globally, certain innovations are helping investors navigate challenges like credit risk and duration management. Which ones? Find out in our latest ETF Impact Report.

Get the report

Footnotes

Disclosure

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The views expressed in this material are the views of William Ahmuty through the period ended July 10, 2025, and are subject to change based on market and other conditions. This document contains certain statements that may be deemed forward looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected.

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ETFs trade like stocks, are subject to investment risk, fluctuate in market value and may trade at prices above or below the ETFs’ net asset value. Brokerage commissions and ETF expenses will reduce returns.

The views expressed in this material are the views of the SPDR Research and Strategy team and are subject to change based on market and other conditions. It should not be considered a solicitation to buy or an offer to sell any security. It does not take into account any investor’s particular investment objectives, strategies, tax status or investment horizon. There is no representation or warranty as to the current accuracy of such information, nor liability for decisions based on such information.

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Concentrated investments in a particular sector or industry tend to be more volatile than the overall market and increases risk that events negatively affecting such sectors or industries could reduce returns, potentially causing the value of the Fund’s shares to decrease.

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Bonds generally present less short-term risk and volatility than stocks but contain interest rate risk (as interest rates rise, bond prices usually fall); issuer default risk; issuer credit risk; liquidity risk; and inflation risk. These effects are usually pronounced for longer term securities. Any fixed income security sold or redeemed prior to maturity may be subject to a substantial gain or loss.

Government bonds and corporate bonds generally have more moderate short-term price fluctuations than stocks, but provide lower potential long-term returns.

Increase in real interest rates can cause the price of inflation-protected debt securities to decrease. Interest payments on inflation-protected debt securities can be unpredictable.

The values of debt securities may decrease as a result of many factors, including, by way of example, general market fluctuations; increases in interest rates; actual or perceived inability or unwillingness of issuers, guarantors or liquidity providers to make scheduled principal or interest payments; illiquidity in debt securities markets; and prepayments of principal, which often must be reinvested in obligations paying interest at lower rates.

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