Two-thirds of fixed-income managers are expecting lower inflows into bond funds in the second half the year, according to a survey by Fitch Ratings.
Many managers expect emerging market inflation and European debt problems to scare away bond investors, while the increasing correlation with equities seems likely to dissolve the perceived diversification benefits of bonds.
Only 7% expected bond inflows to rise, leaving more than a quarter who expect inflows to remain unchanged. The figures are roughly level with sentiments expressed in January, when 68% of fixed-income managers said they expected bond inflows to slow during 2011.
"Tactically, fixed-income has become a challenging asset class," said Aymeric Poizot, senior director in Fitch's fund and asset manager rating group. "Government yields are at risk, because of inflation, mainly in emerging markets, and sovereign issues in developed markets. Credit spreads also now move in tandem with equity markets, given the limited room for further compression and the fundamental dynamic being less supportive, with high yield default rates at an historically low level."
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