Rare! Inflows into U.S. bond ETFs are approaching those of stock ETFs, with AI data center bonds in high demand

As U.S. stocks undergo a significant correction, investors are turning to U.S. Treasuries for safety, with bonds related to AI data centers and short-term government bonds being favored by "smart money."

In the past month, the U.S. ETF market has seen a "very rare" trend: in February, inflows into U.S. bond funds reached $90 billion, approaching the $126 billion inflow into stock funds. This phenomenon is rarely seen in the history of the ETF market, indicating a potential fundamental shift in market sentiment.

Active management bond funds and short-duration bond funds (including the shortest-term U.S. bond funds, known as "ultra-short bond funds") are the biggest beneficiaries of this flight to safety.

According to data from ETF action.com, actively managed enhanced core bond funds—aimed at outperforming the broad corporate bond index "AGG"—have attracted most of the new funds from like-category investors, with shares five times that of their passive management enhanced core bond index ETF peers.

Among actively managed bond ETFs, bond funds related to AI data centers stand out. The construction of AI data centers requires substantial capital expenditures, and these companies raise funds by issuing bonds, which attract significant investor interest due to their close ties to the AI industry.

It is reported that TCW Flexible Income ETF has issued $35 billion in bonds to fund the construction of artificial intelligence data centers.

Another winner in the fixed income market is short-term bond ETFs, especially "ultra-short" government bond funds. According to ETF action.com, this year, inflows into ultra-short bond ETFs accounted for over 40% of total inflows into fixed income ETFs.

The appeal of ultra-short government bonds lies in their high liquidity and extremely low risk, while still providing considerable returns in the current high-interest-rate environment. This offers an ideal temporary haven for investors concerned about stock market volatility or waiting for better investment opportunities.

In recent years, U.S. stocks have surged, while the Federal Reserve has continuously raised bond yields to combat inflation. In this context, traditional diversified stock and bond portfolios have gradually lost their former effectiveness. However, with the significant pullback in U.S. stocks, TCW Managing Director Jeffrey Katz stated that the classic "60-40 investment portfolio" (60% in stocks and 40% in bonds) is experiencing a revival.

Katz recently mentioned on CNBC that during periods of high stock market volatility, "its performance aligns with what it should be."