In a remarkable display of investor confidence, global bond funds have witnessed an unprecedented surge of more than £600 billion in inflows throughout 2024, surpassing the previous record of £500 billion set in 2021. This massive capital movement reflects widespread optimism about potential shifts in monetary policy by major central banks.
The substantial inflows emerged despite a volatile year for bonds, which experienced a strong rally during summer months before surrendering gains towards year-end. Market sentiment cooled as concerns grew about the pace of global rate cuts potentially being slower than initially anticipated.
Matthias Scheiber, senior portfolio manager at Allspring, noted that 2024 marked a significant turning point where investors made substantial wagers on monetary policy shifts. The combination of decelerating growth and moderating inflation rates prompted investors to capitalise on elevated yields in the bond market.
The Bloomberg global aggregate bond index, which tracks both sovereign and corporate debt, demonstrated this volatility. Despite an impressive surge in the third quarter, recent months have seen a sharp decline, resulting in a 1.7 per cent loss for the year. The Federal Reserve’s recent quarter-percentage-point rate reduction, its third consecutive cut, was overshadowed by persistent inflation concerns.
Corporate credit markets have shown greater resilience, with credit spreads reaching historic lows in both European and US markets. This environment has catalysed a surge in bond issuance as companies rushed to capitalise on favourable financing conditions.
James Athey, a bond portfolio manager at Marlborough, highlighted that risk-averse investors have increasingly gravitated towards fixed-income products, particularly as US equities become more expensive. The normalisation of interest rates, combined with cooling inflation and softening growth across global markets, has created what Athey describes as “a much more friendly environment” for bond investors
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