Some €16.4bn flowed into investment-grade and high-yield bonds combined in April, breaching the previous inflows record set in February 2015. In just the past two months, a net €48.5bn has been invested in corporate bonds, as €15.8bn was taken out of equity funds.
While European equity funds were responsible for the bulk of these outflows, there is not a clear-cut beneficiary on the other side of the flows equation. Investors do not seem to have been too picky when it comes to fixed income: their only demand is yield.
That probably explains why government bonds have been such a dissonant. While credit saw strong inflows in March and April, some €3.3bn was taken out of government bonds over the same period, with actively managed funds being the main victim.
Risk-on or risk-off?
This actually makes the recent swing towards bonds an interesting one. Usually investors pile into bonds because they want to reduce risk, but this time looks different. Risky bonds rather than government bonds have profited from the equity outflows. In fact, emerging market debt flows have enjoyed the relatively strongest rise of all. After seeing net outflows in nine consecutive months, the asset class welcomed almost €10bn in net new money in March and April combined.
So, this time around it seems there is a different motivation behind the popularity of bonds. Perhaps investors believe that higher-yielding bonds now offer a more attractive proposition than equities after recent sell-offs. But the fact that the ECB happened to announce in March that it will include corporate bonds in its QE programme undoubtedly also plays its part.