Risk bias falls to neutral in April as investors turn on bonds

State Street’s monthly Risk Appetite Index for April fell to 0.0 from 0.09 revealing a modest retreat in risk bias toward neutral.

Long-term investor allocations to equities and cash fell by 0.2 percentage points each to 53.3% and 18.7% respectively over the course of the month.

Meanwhile cash holdings returned to their long-run average, leaving fixed income holdings as the prime beneficiary this month, with allocations rising 0.4 percentage points to 27.9%, the biggest monthly rise in fixed income allocations since March 2023.

“April was a frightful month for bond and equity market returns, but the reaction of institutional investors was telling,” said Michael Metcalfe, head of macro strategy at State Street Global Markets.

“Rather than hide out in cash, they increased their allocation to fixed income by the most in more than a year: a prescient move given the high, not higher, for longer message on rates from the Fed at the beginning of May.

Institutional investor risk appetite moderated in April led by a surge in demand for the US dollar, with inflows close to a five-year high over the month. Risk appetite in equities was more mixed, with weaker demand for high beta stocks, including tech, offset by firmer demand for emerging markets.

“Even though investors returned to fixed income as a whole in April, demand was concentrated in treasuries, with little appetite for riskier emerging market debt or high yielding corporate credit,” Metcalfe added.

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