Epidemic situation changes fund layout: bonds are more favored by institutional funds than stocks

category:Finance
 Epidemic situation changes fund layout: bonds are more favored by institutional funds than stocks


U.S. stocks have rebounded in the past two weeks and reached a record high, and U.S. bond yields have also climbed. It is worth noting that at the same time, the U.S. bond market continues to be favored. According to data compiled by Bloomberg, the net inflow of US Treasury ETFs in January exceeded US $1.8 billion, the highest level in three months, including US $15.6 billion of investment grade bond funds, the highest level since June last year. In contrast, junk bond ETFs showed their first net outflow since August last year.

Analysts believe that investors choose to buy bonds at this time, in addition to the short-term risk aversion driven, but also in the medium and long-term optimistic bond market performance, and this trend has appeared since last year. According to EPFR global data, although the global equity ETFs have maintained a net inflow of about $43 billion this year, they are less than half of the funds flowing into bond ETFs. Last year, although the global stock market kept rising, investors preference for bonds was more obvious. Bond ETFs had a net inflow of nearly $500 billion, while stock ETFs had a net outflow of $167 billion.

However, some analysts cautioned that even with the outbreak continuing, the bond market still seems to be at the overbought level.

In the short term, bond yields may still be under pressure due to the new crown virus pneumonia, and the bond market will continue to be popular, but we expect bond yields to pick up in the second half of the year and manufacturing to recover later this year, said mishav matejka, strategist at JPMorgan. At the same time, the recovery of bond yield will lead to the recovery of most cyclical industries. With the improvement of economic fundamentals, investors will sell bonds, which will make cyclical stocks the focus of attention again in the second half of this year.

Institutions propose to bet on US Treasuries and Australian dollars

We are buying us 5-to-10-year Treasuries, as well as Chinese Treasuries, said Julio callegari, fixed income fund manager at JPMorgan

Kalegari also pointed out that in addition to US Treasury bonds, the markets subconscious response to the outbreak has also triggered opportunities elsewhere. For example, the Australian dollar has fallen more than 4% against the US dollar this year as investors speculated that demand for Australian commodity exports would decline, and investors also sold Australian shares.

Not only JPMorgan, but also faba bank and Shengbao capital are optimistic about the future price rise of US Treasury bonds. Faba said the US 10-year bond yield could test a 2016 low of 1.40%, while Shengbao capital thought it could fall below 1%.

Emerging market bonds are also bullish

Since the end of January, the central banks of many countries in the Asia Pacific region have taken rapid measures to deal with the spread of the epidemic. The central banks of Malaysia, Thailand and the Philippines have cut interest rates, while the central banks of Singapore and Indonesia have provided dove like forward-looking guidance. At present, emerging market stocks are still under pressure, but emerging market bonds show better compression resistance. Since January 21, the MSCI Emerging Markets Stock Index has fallen about 3%, while the Bloomberg Barclays emerging markets bond index has fallen only 0.2% over the same period. Although emerging market ETFs also have net outflows, the outflows are more concentrated in the stock market, while bond fund outflows are much more moderate.

Some analysts believe that emerging market bonds will continue to benefit from the central banks loose policy expectations, while emerging market central banks still have room to further cut interest rates. From the valuation point of view, although the stock market has further room to rise, its volatility has jumped to the highest level in recent half a year, and the risk-benefit ratio has also risen synchronously, while the credit default swap, which measures the pressure of the bond market, is still at a low level. Alexander wolf, head of investment strategy for Asia at JPMorgan, said: the continued easing of central banks in the Asia Pacific region has made their bonds more attractive, and for stocks, it depends on the extent of the impact of the follow-up to the outbreak. It also makes it less likely that investors are buying emerging market stocks aggressively, in which case buying bonds makes more sense. Source: First Financial Editor: Zhong Qiming

Some analysts believe that emerging market bonds will continue to benefit from the central banks loose policy expectations, while emerging market central banks still have room to further cut interest rates. From the valuation point of view, although the stock market has further room to rise, its volatility has jumped to the highest level in recent half a year, and the risk-benefit ratio has also risen synchronously, while the credit default swap, which measures the pressure of the bond market, is still at a low level.

Alexander wolf, head of investment strategy for Asia at JPMorgan, said: the continued easing of central banks in the Asia Pacific region has made their bonds more attractive, and for stocks, it depends on the extent of the impact of the follow-up to the outbreak. It also makes it less likely that investors are buying emerging market stocks aggressively, in which case buying bonds makes more sense.