The US high-yield market has also seen strong inflows so far this year as investors continue to seek income.
On the other hand, the largest outflows this year have been from European government bonds as investors seek yield elsewhere and prepare for the ECB to reduce the pace of QE.
The financial crisis has caused developed market central banks to take monetary policy to – and maybe past – its limits, which has distorted valuations, particularly in high-grade bond markets.
While this may have held back some demand for fixed income, there are still some areas that offer value and continue to see inflows.
We’re not talking about the sort of returns being seen in equity markets, but it’s worth remembering what role fixed income plays in portfolios.
Even with yields much lower than normal, bonds still provide good diversification benefits, and some segments – particularly via ETFs – can still provide real income.
Paul Syms is responsible for fixed income product management at Invesco PowerShares
