Bond funds back in fashion, but is it temporary?

By Daniel Lanyon on Monday 9 January 2017

Alternative Lending

BofAML has recorded an uptick in inflows to bond funds at the start of 2017 as investors look for safety from riskier assets.

Investors piled back into bond funds in early January, reflecting the largest inflows into the sector for more than three months, according to analysts from Bank of America Merrill Lynch.

More than $6.3bn flowed into regular fixed income funds in, BofAML said, as investors looked past the recent dislocation in the fixed income market. Nonetheless, this followed on from $41.5bn of redemptions in the previous two months.

A ramp up in inflation expectations following the election of Donald Trump due stronger economic growth in 2017 had prompted a fire sale of bonds toward the end of 2016.

This carried on a broader trend in bonds as investors in fixed income looked to alternative credit markets as yields fell. This saw many commentators decry the 30-year bull market in fixed income to have come to end.

Alternative credit funds had been a beneficiary of this trend as both borrowers and investors increasingly looked to specialist niches for financing and decent yields.

However, rising yields and an apparent ‘flight to safety’ seems to have tempted some investors back into the market, at least temporarily, according to BofAML’s Michael Hartnett in a note to investors.

"A wobble in risk assets would be no surprise in the coming weeks, with traders looking to play a pullback,” he said. 

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