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Investors flock to corporate bonds as markets recover

Corporate bond funds are strongly back in fashion after a long streak of outflows, as investor confidence inched up in March and the ECB announced the inclusion of corporate bonds in its QE programme. Emerging market debt even witnessed the biggest net monthly inflows in more than two years, according to Morningstar’s latest fund flows…


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The asset class saw net inflows of €4.1bn over the month, with hard and local currency funds benefiting equally. That followed nine consecutive months of net outflows. High yield bonds were also back in the black after suffering outflows totaling almost €12bn over the previous three months.

David Karni, head of fund selection at BCC Risparmio & Previdenza in Milan, is one of these investors who have turned positive on emerging market debt again, though he hasn’t yet increased his holdings. 

“We will follow the crowd, and increase our exposure in the next weeks or months I believe,” he told Expert Investor. Karni is enticed by the improved sentiment and the yields on offer,” admitting:”But we have a lot of losses to recover, as we were also there in 2014 and 2015.” 

Investment grade corporate bonds welcomed net inflows of €3bn, while government bond funds saw net outflows. According to Adam Whiteley, a global credit manager at Insight Investment, this all makes perfect sense.

“The current spread of corporate credit over government debt is around 1.5%. This range is perhaps not as but it does still make sense. This may not be as attractive as in 2008 and 2012, but they are at levels typically associated with recessions and yet we do not see a recession on the horizon,” he said.

Even though equity markets recovered strongly in March, investors remained wary to test the water, thus foregoing the chance to make up for the losses they suffered in the beginning of the year. European equities saw the biggest net outflows since October 2014, and all other major equity categories also suffered redemptions. Global emerging market equities were the only exception, with €1.2 in net inflows.