Most of Europe’s fund selectors have been bearish on developed market bonds for a year or two now according to regular EIE polls, but until recently many investors had kept adding to their holdings. Finally, fund buyers’ intentions seem to now have come in line with actual money flows. The latest EIE data collected in May and June show bond appetite has turned sourer than ever. Switzerland, which has negative interest rates which makes it attractive for local investors to invest abroad, for example in low-risk government or corporate bonds, is a modest exception. Here, still about one in five investors plan to increase their exposure to developed market bonds in the next 12 months, though overall sentiment is negative here too.
In May, many investors had swapped their long bond positions for derivative strategies. But this seems to have been a one-off move, as net flows into long/short bond funds slumped from €1.7bn in May to a mere €379 in June. It’s not clear where the money taken out of bond funds is going to now, but there are tentative signs that it is not being redeployed instantly, with investors possibly opting for higher cash weightings (more about this in the next issue of the EIE magazine). In the five months to the end of June, total net inflows into all asset classes combined have dropped from €40.6bn to €9.3bn (see graph below).