Fixed-income investors ditched longer-duration bonds and took on some credit risk in January, according to the latest data on exchange-traded funds from State Street Investment Management. They also stopped putting fresh money into inflation-linked bonds for the first time a year. Some $4 billion was deposited into short-term government ETFs and another $5 billion went into intermediate-term funds, while $3 billion flowed out of long-term government bond ETFs, State Street said in a note Saturday. “There’s still good values, more risk/return trade off in the middle part of the curve,” Matthew Bartolini, global head of research strategists, said in an interview with CNBC. The outflows in long-term Treasurys is part of a broader trend that has emerged over the past year, he noted. “Rising deficits and issuance is impacting long term bond yields and pushing them higher, making them less attractive,” he explained. “The volatility associated with long-term bonds is also elevated, and you’re not being fairly compensated given how the curve itself — while steepening — is still somewhat trading in a more flattish band than historical averages would indicate.” Investors also turned to credit-related sectors, which saw $11 billion of inflows into investment-grade corporate, convertible, bank loan and collateralized loan obligation exposures, he said. Convertible bonds are hybrid securities that offer interest payments and can be converted to a set number of shares. CLOs are securitized pools of floating-rate loans to businesses. Bank loans also have floating rates. “That reflects a little bit of risk taking within fixed income while they’re trying to trim duration risk ,” Bartolini explained. High-yield bonds saw minor outflows, but Bartolini noted it was just for one month and not yet a trend. The sector had just seen $3.4 billion of inflows over the prior three months, he said. High-yield bonds are most correlated to equities, while bank loans and CLOS are a bit less correlated, and investment-grade corporates even less so, he said. Inflation-linked bonds break streak Surprisingly, inflation-linked bonds saw $554 million of outflows, snapping the sector’s 12 consecutive months of inflows — the longest since 2022, Bartolini said. This is despite Treasury inflation-linked bonds outperforming nominal Treasurys in January, extending their outperformance to 25 consecutive months when measured on a rolling, one-year basis. But Bartolini wouldn’t be surprised if those inflows to Treasury Inflation-Protected Securities returned in February. “Some of those dynamics impacting inflation are likely to be skewed more to the upside than to the downside,” Bartolini said. “In an environment like this, inflation-linked bonds can act as a way to seek out resilience in a portfolio heavily dominated by nominal growth exposures, meaning typical bond and growth equities.” In total, a record $56 billion flowed into fixed-income exchange-traded funds, which was less about investor sentiment and more about the growing nature and usage of ETFs, the research head noted.