Invest
Institutional investors shift towards bonds amid market volatility
Institutional investors moderated their risk appetite in April, leading to a surge in demand for the US dollar and a retreat from riskier assets, according to the latest State Street Institutional Investor Indicators report released today.
The State Street Risk Appetite Index fell to 0.0 from 0.09, revealing a modest retreat in risk bias across the month of April back towards neutral.
"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," said Michael Metcalfe, Head of Macro Strategy at State Street Global Markets. "The flip side of this is that institutional investor flows into the Japanese yen (JPY) and emerging markets currencies weakened."
The report noted that even before the JPY volatility at the end of April, long-term investor holdings of the JPY were already close to neutral.
Equity risk appetite was mixed, with weaker demand for high beta stocks, including tech, offset by firmer demand for emerging markets, including China.
While 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.
The State Street Holdings Indicators showed that long-term investor allocations to equities and cash fell by 0.2 percentage points each to 53.3% and 18.7% respectively, with cash holdings now back to their long-run average.
Fixed income holdings were 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," Metcalfe added. "Rather than hide out in cash, they increased their allocation to fixed income by the most in more than a year."
He noted that this was a prescient move given the high, not higher, for longer message on rates from the Fed at the beginning of May and perhaps the beginning of investors re-assessing their still significant underweight in bonds.
However, Metcalfe cautioned that with long-term investor allocations to cash now falling back to a long-run average, the bar for good news to pull more money into equities has been raised as investors would likely need to fund this with an 'underweight' in cash.
"In contrast, if US interest rates really are going to be high and stable for now, investors may begin to re-assess their significant underweight in fixed income and look to have begun doing this in April," he said.
Institutional investors shift towards bonds amid market volatility
Institutional investors moderated their risk appetite in April, leading to a surge in demand for the US dollar and a retreat from riskier assets, according to the latest State Street Institutional Investor Indicators report released today.
The State Street Risk Appetite Index fell to 0.0 from 0.09, revealing a modest retreat in risk bias across the month of April back towards neutral.
"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," said Michael Metcalfe, Head of Macro Strategy at State Street Global Markets. "The flip side of this is that institutional investor flows into the Japanese yen (JPY) and emerging markets currencies weakened."
The report noted that even before the JPY volatility at the end of April, long-term investor holdings of the JPY were already close to neutral.
Equity risk appetite was mixed, with weaker demand for high beta stocks, including tech, offset by firmer demand for emerging markets, including China.
While 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.
The State Street Holdings Indicators showed that long-term investor allocations to equities and cash fell by 0.2 percentage points each to 53.3% and 18.7% respectively, with cash holdings now back to their long-run average.
Fixed income holdings were 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," Metcalfe added. "Rather than hide out in cash, they increased their allocation to fixed income by the most in more than a year."
He noted that this was a prescient move given the high, not higher, for longer message on rates from the Fed at the beginning of May and perhaps the beginning of investors re-assessing their still significant underweight in bonds.
However, Metcalfe cautioned that with long-term investor allocations to cash now falling back to a long-run average, the bar for good news to pull more money into equities has been raised as investors would likely need to fund this with an 'underweight' in cash.
"In contrast, if US interest rates really are going to be high and stable for now, investors may begin to re-assess their significant underweight in fixed income and look to have begun doing this in April," he said.
Institutional investors moderated their risk appetite in April, leading to a surge in demand for the US dollar and a retreat from riskier assets, according to the latest State Street Institutional Investor Indicators report released today.
The State Street Risk Appetite Index fell to 0.0 from 0.09, revealing a modest retreat in risk bias across the month of April back towards neutral.
"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," said Michael Metcalfe, Head of Macro Strategy at State Street Global Markets. "The flip side of this is that institutional investor flows into the Japanese yen (JPY) and emerging markets currencies weakened."
The report noted that even before the JPY volatility at the end of April, long-term investor holdings of the JPY were already close to neutral.
Equity risk appetite was mixed, with weaker demand for high beta stocks, including tech, offset by firmer demand for emerging markets, including China.
While 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.
The State Street Holdings Indicators showed that long-term investor allocations to equities and cash fell by 0.2 percentage points each to 53.3% and 18.7% respectively, with cash holdings now back to their long-run average.
Fixed income holdings were 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," Metcalfe added. "Rather than hide out in cash, they increased their allocation to fixed income by the most in more than a year."
He noted that this was a prescient move given the high, not higher, for longer message on rates from the Fed at the beginning of May and perhaps the beginning of investors re-assessing their still significant underweight in bonds.
However, Metcalfe cautioned that with long-term investor allocations to cash now falling back to a long-run average, the bar for good news to pull more money into equities has been raised as investors would likely need to fund this with an 'underweight' in cash.
"In contrast, if US interest rates really are going to be high and stable for now, investors may begin to re-assess their significant underweight in fixed income and look to have begun doing this in April," he said.
RELATED ARTICLES
Bonds
Boost in confidence: investor sentiment balances out in November
In the ever-evolving dance of market sentiment, institutional investors recently took a step towards optimism, as revealed by State Street Global Markets in their November update of the State Street ...Read more
Bonds
Investors take note: review portfolios as global bond surge mirrors 2008 crisis
Investors are being urged to scrutinise their investment portfolios as the global bond market experiences a rally not seen since the 2008 financial crisis. Read more
Bonds
Overstretched US dollar sets the stage for a financial correction in December
As the US bond market sees a robust rally, the financial landscape braces for an impending correction. Ipek Ozkardeskaya, Senior Analyst at Swissquote Bank, sheds light on the current economic ...Read more
Bonds
Sustainable bonds tipped to exceed US$1.5tn in 2022
The sustainable bond market is forecast to grow while overall bond issuance stagnates. Read more
Bonds
Corporate bond market review makes 12 recommendations to enhance investment
Twelve recommendations have been made to support the development of a more active corporate bond market in Australia. Read more
Bonds
Common mistakes in buying bonds that investors should avoid
The bond market is considered as a safe haven for Aussie investors and it’s easy to see why. Read more
Bonds
Student files lawsuit over government bonds
A 23-year-old student has filed a lawsuit against the Australian government after alleging that it failed to disclose climate change-related risks to investors in the country’s sovereign bonds. Read more
Bonds
Bonds in the ‘new normal’ – navigating a recession
Dampening downside risk during a global economic downturn requires active management and informed decisions, writes Justin Tyler. Read more
Bonds
Boost in confidence: investor sentiment balances out in November
In the ever-evolving dance of market sentiment, institutional investors recently took a step towards optimism, as revealed by State Street Global Markets in their November update of the State Street ...Read more
Bonds
Investors take note: review portfolios as global bond surge mirrors 2008 crisis
Investors are being urged to scrutinise their investment portfolios as the global bond market experiences a rally not seen since the 2008 financial crisis. Read more
Bonds
Overstretched US dollar sets the stage for a financial correction in December
As the US bond market sees a robust rally, the financial landscape braces for an impending correction. Ipek Ozkardeskaya, Senior Analyst at Swissquote Bank, sheds light on the current economic ...Read more
Bonds
Sustainable bonds tipped to exceed US$1.5tn in 2022
The sustainable bond market is forecast to grow while overall bond issuance stagnates. Read more
Bonds
Corporate bond market review makes 12 recommendations to enhance investment
Twelve recommendations have been made to support the development of a more active corporate bond market in Australia. Read more
Bonds
Common mistakes in buying bonds that investors should avoid
The bond market is considered as a safe haven for Aussie investors and it’s easy to see why. Read more
Bonds
Student files lawsuit over government bonds
A 23-year-old student has filed a lawsuit against the Australian government after alleging that it failed to disclose climate change-related risks to investors in the country’s sovereign bonds. Read more
Bonds
Bonds in the ‘new normal’ – navigating a recession
Dampening downside risk during a global economic downturn requires active management and informed decisions, writes Justin Tyler. Read more
