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Investors have poured record amounts into global bond funds this year as they bet on a shift toward easier monetary policy by major central banks.
Bond funds have attracted more than $600bn inflows so far this year, according to data provider EPFR, topping a previous high of nearly $500bn in 2021, as investors note that the Slowing inflation could be a turning point for global fixed income.
This “is the year that investors are betting big on a big shift in monetary policy” that has historically supported bond returns, said Matthias Scheiber, a senior portfolio manager at asset manager Allspring.
A combination of slow growth and slowing inflation is encouraging investors to plow into “high” yield bonds, he added.
The record inflows came despite a patchy year for bonds, which rallied in the summer before giving up their year-end gains on rising concerns that the pace of global decline rate may be slower than previously expected.
The Bloomberg global aggregate bond index – a broad benchmark of sovereign and corporate debt – surged in the third quarter of the year but fell in the past three months, leaving it at 1.7 percent for the year.
The Federal Reserve this week lowered rates by a quarter of a percentage point, its third cut in a row. But signs that inflation is proving tougher than expected mean the central bank has signaled a slower pace of easing next year, sending US government bond prices lower and the dollar at a two-year high.
Despite record inflows into bond funds over the course of the year, investors withdrew $6bn in the week to December 18, the biggest weekly outflow in almost two years, according to EPFR data.
The 10-year US Treasury yield – a benchmark for global fixed income markets – is currently back at 4.5 percent, having started the year below 4 percent. Yields rise while prices fall.
Investors flocking to bond funds are driven by a “widespread fear about a (US) recession coupled with disinflation,” said Shaniel Ramjee, co-head of multi-asset at Pictet Asset Management. .
“While disinflation has occurred, recession has not,” he said, adding that for many investors, high initial yields on government bonds may not be enough to offset price losses experienced. of the year.
Corporate credit markets have strengthened, with credit spreads over corporate bonds reaching their lowest in decades in the US and Europe. That prompted a surge in bond issuance as companies sought to take advantage of the easy cash situation.
Risk-averse investors have also been attracted to fixed-income products as equities, particularly in the US, have become more expensive, according to James Athey, a bond portfolio manager at Marlborough.
“US equities have been soaking up flows like there’s no tomorrow, but as interest rates have normalized investors are starting to shift back to traditionally safer bets,” he said.
“Inflation has fallen everywhere, growth has softened everywhere . . . and that’s a much friendlier environment to be a bond investor,” Athey added.