Trillions of dollars on the fence could tip into bond funds: BlackRock

investmentnews.com:

BlackRock anticipates a potential deluge of trillions of dollars into bond funds amid high yields and cooling inflation.

In an earnings call Friday, BlackRock president Rob Kapito pointed to roughly $7 trillion that’s currently parked in money-market funds, a considerable portion of which he expects investors to shift to bond funds. That is in addition to flows that would come from equity funds.

“We’re calling this a once-in-a-generation opportunity. There is finally income to be earned in the fixed-income market, and we are expecting a resurgence in demand,” Kapito said in response to an analyst question.

The trillions currently in money-market funds are “ready, when people feel that rates have peaked, to flood the fixed-income market — and we need to position ourselves to capture that,” Kapito said.

A report from the Bureau of Labor Statistics earlier this week showed that consumer prices were up 3% year over year in June, representing the lowest inflation rate in more than two years. That, advisors said, is an indication that the Fed’sinterest-rate hikes to cool inflation are finally taking effect. The result also hints that further rate hikes this year may be minimal.

Currently, 80% of fixed-income assets have yields above 4%, Kapito said.

“Yields are back,” he said. “Most people think that yields are going to continue to rise … You can actually earn attractive yields without taking much duration or credit risk.”

In the second quarter, BlackRock’s fixed-income funds saw net inflows, led by demand for high-yield total return and municipal bond products, reflecting the opportunities for alpha that have not been seen in years, Kapito said.

But investors are also still demanding passive bond ETFs, with $68 billion