Record $600bn pours into global debt safety funds in 2024

Investors poured record amounts into global debt safety funds this year as they bet on a shift towards easier economic strategy by major central banks.

debt safety funds attracted more than $600bn in inflows so far this year, according to data provider EPFR, topping the previous high of almost $500bn in 2021, as investors sensed that slowing worth rise would be a turning point for global predictable returns.

This “was the year that investors bet large on a substantial shift in economic strategy” that has historically supported debt safety returns, said Matthias Scheiber, a elder stake distribution collection manager at property manager Allspring.

A mix of slowing growth and slowing worth rise encouraged investors to plough into bonds at “elevated” yields, he added.

The record flows came despite a patchy year for bonds, which rallied over the summer before giving up their gains by the complete of the year on rising concerns that the pace of global rate cuts will be slower than previously expected.

The Bloomberg global aggregate debt safety index — a broad point of reference of sovereign and corporate obligation — surged in the third quarter of the year but has slumped over the history three months, leaving it down 1.7 per cent for the year.

The Federal safety net this week lowered rates by a quarter of a percentage point, its third cut in a row. But signs that worth rise is proving more stubborn than hoped meant the central financial institution signalled a slower pace of easing next year, sending US government debt safety prices lower and the dollar to a two-year high.

Despite record inflows into debt safety funds over the course of the year, investors withdrew $6bn in the week to December 18, the biggest weekly outflow in almost two years, according to EPFR data.

The 10-year US Treasury gain — a point of reference for global predictable returns markets — is currently back up at 4.5 per cent, having started the year below 4 per cent. Yields rise as prices fall.

Investors piling into debt safety funds were driven by a “widespread terror about a [US] decline coupled with disinflation,” said Shaniel Ramjee, co-head of multi-property at Pictet property Management.

“While disinflation occurred, the decline didn’t,” he said, adding that for many investors, the high starting yields on national securities might not have been enough to make up for losses in worth experienced during the year.

Corporate capitalization markets have been more resilient, with capitalization spreads above corporate bonds reaching their lowest in decades in the US and Europe. That prompted a surge in debt safety issuance as companies sought to receive advantage of straightforward money conditions.

hazard-averse investors have also been attracted to fixed-income products as equities, particularly in the US, have become increasingly expensive, according to James Athey, a debt safety stake distribution collection manager at Marlborough.

“US equities have been sucking up flows like there’s no tomorrow, but as gain rates have normalised investors have started to shift back into traditionally safer bets,” he said.

“worth rise has arrive down pretty much everywhere, growth has softened pretty much everywhere . . . and that’s a much more amiable surroundings to be a debt safety investor,” Athey added.