The current climate for investors at the global level is looking increasingly volatile for a variety of reasons, and it is only natural for investors to look for the more stable market in which to park their assets before the whole thing blows over. As far as stable investments are concerned, bonds are regarded as the gold standard. While the return on investment on bonds might not be as big as it is the case with some stocks, the returns are mostly steady, and more often than not, an investor’s capital remains protected despite global headwinds.
In a new development, it has now emerged that due to the widespread concerns regarding a slowdown in the global economy and the possibility of interest rate cuts by central banks; investors are moving away from the equity in a big way. The money is being pumped into bonds, and according to the latest data, the inflows into the global market is at its highest level in four years. EPFR, a renowned market tracking firm, has revealed that funds involved in the fixed income markets attracted as much as $17.5 billion in the week that ended on 5 June. On the other hand, investment-grade funds that are usually rated for being more stabled got $18.5 billion in funds in a matter of five days.
On the other hand, the more volatile bond markets, like those involved in corporate debt and emerging markets, recorded fund withdrawals to the tune of $10 billion. It is quite clear that investors are now bent on protecting their capital for the foreseeable future. An analyst at German banking major Commerzbank stated that possibly interest rate cuts and United States’ trade disputes are the primary reasons behind this development. The analyst stated,
The Fed seems ready to grant Donald Trump his wish and lower interest rates. Both the homemade trade dispute the US has with the rest of the world and the decline in inflation over the past few months provide the rationale behind such a move.
It remains to be seen whether such inflows continue into the bond market in the coming week.