In 2024, $600 billion will flow into the bond market globally, setting a new historical record

Due to investors betting that major central banks will shift to loose monetary policy, global bond funds attracted a record inflow of funds this year.

On Monday, media reports citing EPFR data indicated that global bond funds attracted over $600 billion in inflows in 2024, breaking the historical record of nearly $500 billion set in 2021. Investors are flocking to the fixed income market, betting that major central banks will turn to loose monetary policy.

Matthias Scheiber, a senior portfolio manager at Allspring, stated:

2024 is a year where investors are making significant bets on a major shift in monetary policy, as the combination of slowing economic growth and declining inflation encourages investors to buy bonds while yields are high.

Despite the bond market's fluctuating performance throughout the year, it still attracted record inflows. The Bloomberg Global Aggregate Bond Index saw a significant rise in the third quarter but has declined over the past three months, down 1.7% for the year. The yield on the 10-year U.S. Treasury bond has currently rebounded to 4.5%, up from below 4% at the beginning of the year.

Shaniel Ramjee, co-head of multi-asset at Pictet Asset Management, pointed out:

The influx of investors into bond funds is due to widespread concerns about a U.S. economic recession and deflation; deflation has indeed occurred, but a recession has not materialized.

The corporate bond market has performed more robustly, with credit spreads on corporate bonds in the U.S. and Europe narrowing to their lowest levels in decades, prompting a surge in corporate bond issuance as companies take advantage of the loose funding environment.

James Athey, a bond portfolio manager at Marlborough, stated:

As interest rates normalize, investors are beginning to shift towards traditionally safer investments. Inflation has declined almost everywhere, and economic growth has slowed almost everywhere... this creates a more favorable environment for bond investors.

It is important to note that while bond fund inflows have set records for the year, there was a $6 billion outflow in the week ending December 18, marking the largest outflow in nearly two years. The Federal Reserve cut interest rates for the third consecutive time this week, but due to inflation being more stubborn than expected, the Fed hinted at slowing the pace of rate cuts next year, which could affect the future trajectory of the bond market.

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