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George Harrington, MSCI

MSCI’s Harrington on fixed income indexing in volatile markets

Fixed income ETFs have seen rapid growth over recent years, apparently in disregard as to what is happening in their underlying markets.

George Harrington, Global Head of Fixed Income & Derivatives at MSCI, believes that what we are seeing is a flight to quality and a safe haven in troubled times. In recent years, bond markets have also evolved beyond over-the-counter trading, with the expansion of electronic trading changing the ways in which portfolios can be constructed, Harrington says.

“The fixed income ETF market was significantly behind the equity market but has rapidly moved into a catch-up scenario, with dramatically improved inflows.” Harrington says. He also notes that the focus on ESG and climate-related fixed income ETFs has become a major ETF trend which many ETF and index providers are focusing on.


2022 has seen inflation become a major topic, with 40-year highs in inflation figures.

“The fixed income ETF market has taken some serious hits in terms of assets. But as volatility is high across the market, we are seeing a flight to quality, with fixed income playing strongly in that space.

“Credit spreads are widening and negatively affecting bond prices and the safe haven aspect is drawing inflows in.”

Harrington reports a growing interest in fixed income indexes and portfolio analytics. “There is so much volatility in the market and so much going on that it is a really exciting time with our partnerships, such as the one with MarketAxess.”

The invasion of Ukraine has sparked volatility and driven investors sharply away from higher risk investments, Harrington says.

“People are starting to leg up the quality curve and there is lots of pressure on credit spreads. A flight to quality is a major driver with burgeoning issuance stemming from the massive support ongoing for western countries to assist with the conflict in Ukraine, driving huge packages with the US looking at a USD40 billion package.

“Supply chain shortages and issuance means a rising yield environment is almost unavoidable, and over the longer-term inflation protection from something like a TIPs index will become more in focus over next few years. We think that opportunities for fixed income indexes are really going to be burgeoning and if you look at the MSCI-wide footprint of partnerships you can see that we want to give our clients as many options as possible, with a focus on ESG and climate-related investments. In client interactions that is the theme that is continually recurring.”

Looking forward, Harrington sees institutions increasingly looking forward to indexed ETFs as head of derivatives indices at MSCI.

“I do think that equities and fixed income oftentimes move in a negative correlation and with the investability of ETFs in the fixed income sector, you will see more balance in adoption between equity and fixed income index ETFs as markets are in this period of prolonged volatility, which started in 2020 with the onset of Covid. Now, two years down the track, having fixed income options that are easily investable will continue to be a major opportunity, not just for retail, but also institutional investors.

“In our derivatives business, we are noting the open interest in our listed futures and options is remaining strong despite the degradation of asset values which suggests that large positions are building up on the short side interest as institutions remain hedged against the downside. They are very cautious which portends a longer-term trend for volatility where fixed income will become a larger component of a global investment portfolio.”


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