At the moment, sentiment towards all developed bond categories is net negative, meaning people looking to decrease their exposure outnumber those who plan to increase allocation. However, the fund selector mood towards developed market bonds has changed slightly to the positive side compared to the previous quarter.
At the same time, appetite for emerging market debt has come down, though the asset class is still significantly more popular than any other bonds. Some fund selectors have decrease their exposure following the plunge in commodity prices and the rising dollar, which has affected the financial position of many issuers in developing countries.
Will ECB drive further convergence?
Yesterday’s ECB announcement to inflate its balance sheet by €60bn each month starting in March might very well give government bond markets the fuel to extend their rally for at least a year. And government bond sentiment could improve towards a neutral view, if only because few investors dare to challenge central banks these days. All government bond yields decreased yesterday, with peripheral southern countries showing the largest drop. By contrast, higher-yielding bonds stayed flat or saw yields increase.