Investors flock to the bond market! Bond funds rake in nearly $400 billion in the first half of 2024
Investors have been flocking into bond funds this year, attracting nearly $400 billion in net inflows, accounting for 51% of the total for the whole year of 2021. With global central banks gradually lowering interest rates, actively managed funds have attracted the largest share of fund inflows. In the past few years, fixed income funds have suffered heavy blows due to rising interest rates, but the tide is now turning. It is expected that the Federal Reserve will soon cut interest rates, U.S. stocks are hitting new highs, and the yield on 10-year U.S. Treasury bonds has fallen. Investors' interest in the bond market is increasing
According to the Zhitong Finance and Economics APP, as global central banks have gradually begun to cut interest rates, investors have been pouring into bond funds this year. According to EPFR data, bond funds have attracted nearly $400 billion in net inflows this year, accounting for about 51% of the total amount recorded in 2021.
Cameron Brandt, research director at EPFR, stated in a client report on Monday, "So far this year, actively managed funds have attracted the largest share of fund inflows."
In 2022, as the Federal Reserve and other global central banks begin to raise interest rates to combat inflation, actively managed fixed income funds have been hit hard. Rising interest rates have dealt a heavy blow to low-yield bonds issued in the past decade in a low interest rate environment, especially when newly issued securities start offering the highest yields in the past 15 years.
According to FactSet data, the Bloomberg US Treasury Bond Index with a maturity of 20 years or more has a return rate of 1.1% month-to-date, but the three-year return rate remains at -30.4%. Similarly, the three-year return rate of the iShares 20+ Year Treasury Bond ETF (TLT.US) is also over -30%.
Nevertheless, the shift has already begun. The European Central Bank cut rates by 25 basis points from a record 4% to 3.75% in June.
The Federal Reserve typically leads global interest rate cuts, but currently its policy rate remains in the range of 5.25% to 5.5%, close to a twenty-year high. However, the rise in the U.S. unemployment rate to 4.1% in June and other signs of potential weakness in the U.S. economy have led more investors to expect the Fed to cut rates soon.
According to FactSet data, U.S. stocks hit new highs mid-year, while the 10-year U.S. Treasury yield has fallen from around 5% at the peak of the COVID-19 pandemic to about 4.27%. In comparison, the 3-month Treasury yield is at 5.35%