Although there has been a small increase in positive sentiment towards developed market government bonds as risk aversion has risen, investment grade corporate bonds remain widely unloved. Fund selectors in Germany, Italy, Spain, the Netherlands and Belgium are marginally more positive on developed market government bonds. Sentiment in France continues to be weak, but this may be a function of the weakness in its domestic government bond market.
The change in sentiment towards investment grade government bonds in some jurisdictions has been profound. At the last Expert Investor Europe survey in October of last year 41% of German investors were positive towards the asset class. By January 2014, just 5% of those surveyed were positive. The Netherlands saw similar weakness. In much of the rest of Europe sentiment was already very negative and remained so.
In Germany there was also a shift in sentiment towards high yield corporate bonds. In October 2013, 30% were positive on the asset class. This has slipped to 10% by January this year. Sweden and Denmark also saw declining allocations. This is likely to be a reflection of the strong performance of corporate bonds in 2013 and historically low spread levels over government bonds.
Emerging market bonds remained unpopular, in line with all other emerging market assets. Only Belgian fund selectors saw an opportunity in lower valuations and increased their allocation to the asset class.