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Investors poured record amounts into global bond funds this year, betting that major central banks would shift to accommodative monetary policy.
Bond funds have seen more than $600 billion in inflows so far this year, according to data provider EPFR, as investors sensed that slowing inflation would be a turning point for global bond markets. , surpassing almost $500 billion in 2021, which was the highest ever.
Matthias Scheiber, senior portfolio manager at asset management firm Allspring, said this year was “a year in which investors bet big on a major shift in monetary policy,” which has historically supported bond returns.
He added that the combination of slower growth and slower inflation has prompted investors to put money into “higher” yielding bonds.
The record inflows come despite a patchy year for bond markets, which rose over the summer but do not suggest that the pace of global interest rate cuts will be slower than previously expected. Concerns about the rise in prices grew, and the rise stopped by the end of the year.
The Bloomberg World Aggregate Bond Index, a broad benchmark for sovereign and corporate bonds, soared in the third quarter of this year, but has slumped over the past three months and is down 1.7% for the year.
The Federal Reserve cut interest rates by a quarter of a point this week, the third straight rate cut. But signs that inflation is proving more stubborn than expected means the central bank has signaled it will ease the pace of easing next year, sending U.S. bond prices lower and the dollar to a two-year high. Ta.
Despite record inflows throughout the year into bond funds, investors withdrew $6 billion in the week ending Dec. 18, the highest weekly outflow in about two years, according to EPFR data. It became the size of yellowtail.
The yield on 10-year U.S. government bonds, the benchmark for global bond markets, had been below 4% since the beginning of the year, but has now recovered to 4.5%. As prices fall, yields rise.
Shaniel Ramsey, co-head of multi-asset at Pictet Asset Management, said the flood of investors into bond funds was driven by “broader fears of a (U.S.) recession coupled with disinflation.” Ta.
“We had disinflation, but we didn’t have a recession,” he said, adding that for many investors, the high starting yields on government bonds may not have been enough to offset the price declines experienced during the year. He added that there is.
Corporate bond markets have become more resilient, with credit spreads over corporate bonds in the U.S. and Europe reaching their lowest levels in decades. This led to a surge in corporate bond issuance as companies sought to take advantage of easy financing.
James Asay, fixed income portfolio manager at Marlboro, said risk-averse investors are also attracted to fixed income products, especially as U.S. stocks become increasingly expensive.
“U.S. stocks are sucking up flows like there’s no tomorrow, but as interest rates normalize, investors are starting to return to traditional, safer investments,” he said.
“Inflation has fallen almost everywhere, growth has slowed almost everywhere… and it’s a much friendlier environment for bond investors,” Athy added.
