Global bond funds record largest outflows in two decades – Reuters

Oct 5 (Reuters) – Global bond funds recorded the biggest outflows in two decades in the first three quarters of this year as big interest rate hikes by central banks to tame inflation raised fears a recession.

According to Refinitiv Lipper, global bond funds faced a cumulative outflow of $175.5 billion in the first nine months of this year, the first net sales in this period since 2002.

Global bond funds fell 10.2% on average in their net asset values, their worst slump since at least 1990, the data showed.

Governments and businesses have borrowed heavily over the past few years, taking advantage of rock-bottom interest rates, and now face higher interest obligations due to rising yields.

“The combination of high debt levels and rising interest rates has reduced investor confidence in the government’s ability to service debt, leading to the massive outflows we’re seeing,” Jacob said. Sansbury, CEO of Pluto Investing.

He added that outflows of bond funds could continue until 2023, as a reduction in interest rates and a reduction in the debt burden are unlikely.

Emerging market bonds faced an outflow of around $80 billion in the first three quarters of this year, while US high-yield bonds and inflation-linked bonds saw net sales of $65.81 billion and $16.44 billion, respectively.

The iShares UK Gilts All Stocks Index (UK) D Acc saw outflows of $6.67 billion last quarter, while the ILF GBP Liquidity Plus Class 2 and Vanguard UK Short Term Investment Grade Bond Index GBP Acc recorded withdrawals of $2.16 billion and $993 million. respectively.

BONDS ARE ATTRACTIVE NOW

However, some fund managers said bonds looked attractive after this year’s crisis.

The ICE BoFA US Treasury Index (.MERG0Q0) has fallen 13.5% so far this year, while the Bloomberg Global Aggregate Bond Index (.BCGA) has lost around 20%.

“The yield cushion now protects the investor against negative total returns much more than it did at the start of the year,” said Jake Remley, portfolio manager at Income Research + Management.

“This almost certainly improves the outlook for bonds going into the end of the year, even if interest rates continue to rise as rapidly as they have over the past 9 months.”

Yields on 2-year and 10-year US Treasuries were around 4.12% and 3.68% respectively on Wednesday, down from 0.7% and 1.5% at the start of the year.

Similarly, the return of the ICE BofA US High Yield Index (.MERH0A0), the benchmark commonly used for the junk bond market, was 9%, compared to 4.3% at the start of the year.

“Some bonds have become ‘babies thrown out with the bathwater’ and offer attractive value at these levels,” said Ryan O’Malley, portfolio manager at Sage Advisory Services.

“However, it is important to note that there will likely be further credit stress in many corners of the bond market and risk management is paramount in these uncertain times.”

Reporting by Patturaja Murugaboopathy Editing by Vidya Ranganathan and Mark Potter

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