MarketMuse update profiles the billions of dollars that have flowed into bond ETFs over the past few years and an in depth look at the reasoning behind it courtesy of the Wall Street Journal .

Institutions are piling into exchange-traded bond funds at the fastest pace on record, driven by forces reshaping the increasingly illiquid corporate-debt market and their desire to stay nimble ahead of expected interest-rate moves.

Bond ETFs took in $32 billion globally this year through Feb. 26, according to data from Bloomberg LP, in what has been the strongest start to any year since the funds began in 2002.

More than half the $20 billion that flowed into fixed-income ETFs atBlackRock Inc. ’s iShares unit in the first eight weeks of this year came from institutions such as insurers and endowments. In some large funds, institutional money in ETFs has more than doubled in the past few years, the firm said.

The shift is the latest good news for providers of exchange-traded funds, which essentially are index-tracking funds that trade like stocks. Bond ETFs are already popular with individual investors because they have low fees and are easy to trade, qualities that are now appealing to more sophisticated investors who typically focus on hand-picking individual debt securities to beat their benchmarks.

“There was a monster rotation into fixed-income ETFs in February,” coming out of sector-based stock funds, said Reginald Browne, global co-head of ETF market making at Cantor Fitzgerald & Co. He said a client recently traded $1.8 billion in bond ETFs in a single trade.

A host of factors is behind institutions’ adoption of bond ETFs, analysts say. Among them: Deteriorating liquidity in corporate bonds has frustrated large investors as many individual bonds have become difficult to buy or sell quickly at a given price, thanks in part to rules limiting banks’ risk-taking.

For the entire article from the Wall Street Journals’ Katy Burne, click here.