Investors have poured record sums into global bond funds this year, as they bet on a shift toward more accommodative monetary policy by major central banks.
Bond funds have attracted more than $600 billion in flows so far this year, according to the British newspaper, citing data provider EPFR, exceeding the previous highest level of nearly $500 billion in 2021, with investors feeling that the slowdown in… Inflation will be a turning point for global fixed income instruments.
The newspaper quoted Matthias Schipper, senior portfolio manager at Allspring Asset Management Company, as saying that this “was the year in which investors bet heavily on a major shift in monetary policy,” which has historically supported bond yields.
Encouraging investors
Schipper added that the slowdown in growth and inflation encouraged investors to invest in bonds with “high” yields.
The record inflows came despite an erratic year for bonds, which rose over the summer before giving up their gains by the end of the year, due to growing concerns that the pace of global rate cuts will be slower than previously expected.
The Bloomberg Global Bond Index, a broad gauge of sovereign and corporate debt, rose in the third quarter of the year, but has fallen over the past three months, leading to a 1.7% decline for the year.
The US Federal Reserve this week cut interest rates by a quarter of a percentage point, its third straight cut, but signs that inflation is proving more persistent than expected meant the central bank signaled a slower pace of easing next year, sending bond prices lower. The US government and the dollar reached the highest level in two years.
Despite record flows into bond funds throughout the year, investors withdrew $6 billion in the week until December 18, the largest weekly flow in nearly two years, according to EPFR data.
The yield on 10-year US Treasury bonds – a standard for global fixed income markets – is currently rising at 4.5%, after starting the year at less than 4%, and yields are rising as prices fall.
The British newspaper quoted Chanel Ramji, co-head of multi-asset management at Pictet Asset Management, as saying that investors accepting bond funds were motivated by “widespread fear of a recession (in the United States) coupled with low inflation.”
“While inflation fell, there was no recession,” he said, adding that for many investors, higher initial yields on government bonds may not have been enough to offset the price losses they suffered during the year.
Corporate bonds
Corporate credit markets were more resilient, with credit spreads over corporate bonds reaching their lowest levels in decades in the United States and Europe, prompting an increase in bond issuance as companies sought to take advantage of easier access to financing.
Risk-averse investors have also been drawn to fixed income products as the cost of stocks rises, especially in the United States, according to James Athey, bond portfolio manager at Marlboro.
He said that US stocks were quickly attracting investments, but with interest rates returning to normal, investors began to return to traditionally safer bets.
“Inflation has fallen… and growth has declined almost everywhere… and this is a more favorable environment for bond investors,” Athey added.
