Record $600bn pours into global bond funds in 2024

Stay informed with free updates

Just sign up Capital markets myFT Digest – delivered straight to your inbox.

Investors poured record amounts into global bond funds this year as they bet on a move to easier monetary policy by major central banks.

Bond funds have drawn inflows of more than $600 billion so far this year, according to data provider EPFR, beating a previous high of nearly $500 billion in 2021, as investors sensed that slowing inflation would be a turning point for global fixed income.

This was “the year that investors bet big on a significant change in monetary policy,” which has historically supported bond yields, said Matthias Scheiber, senior portfolio manager at asset manager Allspring.

A mix of slowing growth and slowing inflation has encouraged investors to attract “higher” yield bonds, he added.

The record flows came despite a patchy year for bonds, which rallied over the summer, giving up their gains by the end of the year on growing fears that the pace of global interest rate cuts will be slower than previously expected.

Bloomberg’s global aggregate bond index, a broad benchmark of sovereign and corporate debt, rose in the third quarter of the year but has fallen over the past three months, leaving it down 1.7 percent for the year.

The Federal Reserve cut interest rates by a quarter of a percentage point this week, its third straight cut. But signs that inflation was more stubborn than expected meant the central bank signaled a slower rate of easing next year, cutting the U.S. government’s interest rate. bond prices and the dollar to a two-year high.

Despite record inflows into bond funds for the year, investors pulled $6 billion in the week to Dec. 18, the biggest weekly outflow in nearly two years, according to EPFR data.

The 10-year U.S. Treasury yield, a benchmark for global fixed-income markets, currently stands at 4.5 percent, having started the year below 4 percent.Yields are rising as prices fall.

Investors piling into bond funds were motivated by “widespread fear of a [US] recession coupled with disinflation,” said Shaniel Ramji, head of multi-assets at Pictet Asset Management.

“Before the recession happened, the recession didn’t happen,” he said, adding that for many investors, the high initial yields on government bonds may not have been enough to offset the price losses suffered during the year.

Corporate credit markets have been more flexible, with higher corporate bond spreads reaching their the lowest decades in the U.S. and Europe This prompted a surge in bond issuance as companies sought to take advantage of easy money conditions.

According to Marlborough bond portfolio manager James Athey, risk-averse investors have also been drawn to fixed income as equities, particularly in the US, have been rising.

“US stocks have been sucking up the flows like there’s no tomorrow, but as interest rates have normalized, investors have started to return to traditionally safer bets,” he said.

“Inflation has decreased everywhere, growth has softened everywhere. . and it’s a much friendlier environment to be a bond investor,” Atey added.