Assets under management in fixed income ETFs could reach US$2 trillion over the next 10 years, according to iShares.

In a new analysis, the world’s largest ETF issuer said it expected demand for fixed income products to increase exponentially from the AUM today of $302 billion, and to continue far beyond the current trend for investors to move away from equities into income-producing funds.

In its latest ETP Landscape report, iShares’ parent BlackRock reported that fixed income ETPs accounted for US$42 billion of the total US$105 billion in global inflows into ETPs in the first half of this year. This represented a big jump for the asset class, which recorded inflows of just US$19.6 billion in the same period last year, and US$49.9 billion for the whole of 2011.

“The dynamic forces driving the long-term expansion of the fixed income ETF market have been especially evident this year, with the market attracting some of its strongest asset flows to date,” said Jennifer Grancio, head of iShares global business development at BlackRock. “Yet even after a decade of continuous growth, fixed income ETFs are still just scratching the surface of their potential.”

Investment into equities ETPs, by comparison, has dropped off this year, with inflows into developed market equity trackers falling to $US40.5 billion in the first half, down from $US55.7 billion in the first half of 2011. Total inflows for 2011 were US$102 billion, a figure that looks unlikely to be replicated this year.

iShares launched its first fixed income ETF, the iBoxx $ Investment Grade Corporate Bond Fund, in July 2002.

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