Investors' 2010 love affair with bonds came to an end in the last quarter of the year, at least in the Netherlands, where investors withdrew €2.1bn from bond funds on the back of poor performance.
Statistics from the Dutch central bank and regulator, De Nederlandsche Bank (DNB), revealed that in the last quarter of 2010 bond investments in Dutch funds posted a negative return of 2.7%, with the loss on government paper hitting as high as -4.2%.
DNB said the poor performance may be attributed to the interest rate rises in both the US and the euro area in response to market expectations of a persistent economic recovery.
“Also the Fed’s announcement in early November of extra purchases of government bonds at $600bn caused long-term rates to edge up. This increase can be attributed to investors expecting the economic prospects to be positively influenced by this purchase programme, making for higher inflation expectations followed by rising interest rates,” said the regulator in its statistical release.
The outflow from bond funds in the Netherlands wiped out the asset growth experienced by equity investments over the quarter.
At year-end 2010, Dutch investment funds' total net assets stood at €441bn, up 1.6% on the third quarter. The growth was lower than the third quarter figure of 2.8%
In both quarters, the increase in total net assets was primarily the result of price gains realised on equity investments. But in the fourth quarter of 2010, this growth was offset by the substantial outflows and losses on sovereign bond investments.
Overall, investors withdrew €7.6bn from investment funds over the quarter.
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