In 2010, assets under management (AuM) in bond ETFs totaled $210 billion which at the time was equal to the economic output of the Philippines, according to World Bank data. From that modest start, it took the market 17 years to reach $1 trillion, but developments are changing that dynamic according to a study released by Blackrock on Wednesday.

But the «pandemic era accelerated bond ETF adoption in ways that are self-reinforcing and, we believe, enduring», the report said, causing a rethink of the growth trajectory. Blackrock had forecasted the global AuM to double to $2 trillion by the end of 2024, but now sees that happening in 2023, some 18 months early and «despite currently challenging economic conditions».

«Traditionally we used individual bonds to express our tactical views. Today we increasingly use ETFs as liquidity solutions in our portfolios alongside bonds, futures, and other investment vehicles», says James Keenan, CIO and global head of credit at Blackrock.

South Korea

By 2020, the bond ETF market had grown to around $1.5 trillion which was just slightly smaller than the GDP of South Korea and Canada. Asset growth is seen continuing to rise to $2.8 billion which was the size of the U.K. economy in 2020, according to the report.

Where in 2030?

Like many technologies, the adoption of bond ETFs has been accelerated by the pandemic, exposing longstanding inefficiencies in the fixed income markets. Bond ETF growth persists even in the face of mounting inflation and rising rates as investors around the world look for better ways to access fixed income returns, Blackrock says.

Given those dynamics, Blackrock said it is upgrading its projections for the industry to reach $5 trillion, or 5 percent of the total bond market, by the end of the decade. That would put it on a footing with Japan's economy which was pegged at $5.1 trillion. 

After that, only the economies of the United States and China are larger.