Investors ploughed $6.4 billion (€5 billion) into bond funds in the week ending 11 January, the highest weekly inflow for 18 months, according to data firm EPFR.
High-yield bond funds attracted $2 billion, in a sign that many investors are rediscovering an appetite for risk after the volatility seen in the final quarter of 2011.
European bond funds also had an encouraging week, putting an end to a 17-week losing run. If appetite for these funds continues, it could signal a revival of confidence in Europe's troubled sovereign issuers.
The enthusiasm for bonds comes despite some government paper trading at extremely low yields. Yields on one-year German bunds are almost zero – well below inflation – meaning investors who buy these securities will see the value of their assets decline in real terms.
However, government bonds from the United States, UK and Germany continue to be viewed as safe investments, which are attractive in times of uncertainty. Higher yields are available on emerging market bonds and corporate debt.
In a sign of increased optimism in the financial markets, equity funds also attracted more than $6 billion. Equity funds targeting the Europe, Middle East and Africa region, which has been blighted by the eurozone crisis, had inflows for the first time in ten weeks.
©2012 funds europe