New research says fixed income ETFs now underpin income, liquidity, and resilience in modern portfolios
A new report from BlackRock argues that bond ETFs are no longer peripheral tools but have become central to how portfolios are built and managed, as investors navigate higher yields and increasing complexity across asset classes.
In the paper, titled “A durable foundation: How bond ETFs are powering a portfolio evolution and fixed income revolution,” the firm’s fixed income specialists outline how structural changes in markets and asset allocation are elevating the role of bonds, particularly in ETF form.
The report is authored by Stephen Laipply, global co-head of iShares fixed income ETFs; Karen Veraa-Perry, U.S. head of iShares fixed income product strategy; Vasiliki Pachatouridi, EMEA head of iShares fixed income product strategy; and Hui Sien Koay, APAC head of iShares fixed income product strategy.
“Fixed income has been undergoing a quiet but profound revolution,” wrote Alex Claringbull, senior managing director and global head of index investments at BlackRock, in the report’s foreword.
According to the authors, that evolution is being driven by a convergence of factors: a more attractive yield backdrop, rapid growth in alternative asset classes, and ongoing modernization of bond markets. Together, these forces are reshaping how investors think about fixed income within portfolios.
The report points to a significantly improved income environment as a key catalyst. With yields higher across global markets, bonds are once again positioned to contribute meaningfully to both income generation and total return—restoring a role that had been diminished during years of low rates.
More complex portfolios
At the same time, portfolios themselves are becoming more complex. Allocations to private markets, digital assets, and other non-traditional exposures are expanding, introducing new liquidity and volatility challenges. In that context, the authors argue that fixed income is evolving beyond its traditional role as a diversifier.
Instead, they describe it as a “liquidity engine,” “income anchor,” and stabilizing force that helps support more complex investment strategies elsewhere in the portfolio.
Bond ETFs are central to that shift. The report highlights how these vehicles have grown into scalable, transparent, and liquid tools that allow investors to access broad segments of the bond market efficiently. Global bond ETF assets have surpassed $3 trillion, with flows accelerating in recent years as adoption widens among institutional and wealth investors.
The authors also emphasize how investor behavior is changing. Elevated cash balances (estimated at nearly $12 trillion globally) reflect both caution and structural shifts in liquidity management. However, the report notes that remaining heavily in cash may carry increasing opportunity costs, particularly as interest rates begin to fall and bond returns historically improve.
At the same time, demand for income is driving increased interest in active and systematic bond ETF strategies. While active ETFs still represent a smaller share of the market, the report notes that they are capturing a growing portion of inflows as investors look for more flexible approaches to managing duration and credit exposure.
Liquidity considerations
Liquidity considerations are another major theme. As private markets continue to expand, potentially reaching $32 trillion by 2030, the need for liquid assets within portfolios becomes more pronounced.
The authors suggest that bond ETFs are well positioned to meet that need, offering intraday trading and transparency even during periods of market stress.
The report also highlights the growing influence of digital assets, noting that their low correlation with fixed income can make bonds an effective counterbalance within diversified portfolios.
Overall, the authors argue that fixed income is moving from a supporting role to a foundational one in portfolio construction. Bond ETFs, they suggest, are at the center of that transition, enabling investors to manage liquidity, generate income, and maintain resilience as portfolios become more complex.
As the report concludes, while innovation across asset classes is likely to continue, portfolios will increasingly depend on a stable core; one that fixed income ETFs are now positioned to provide.
