While over half of professional investors are currently underweight fixed income, 99% expect to increase their allocation over the next 18 months, according to a study by Managing Partners Group.
The data comes as bond yields hit their highest level since the financial crisis. However, in the past year, the market has shifted rapidly. While the Bloomberg Global Aggregate index fell 3.6% from the beginning of the year to its trough in May, it now has a year-to-date return of 0.82%.
Although gilt yields spiked following the Autumn Budget, they have now largely settled to levels from before the announcement. In 2024, the Bank of England made two rate cuts to reach an interest rate of 4.75%.
See also: UK inflation jumps to 2.3% for October
In the US, treasury yields also lowered as Scott Bessent was chosen as US Treasury Secretary. While the Federal Reserve has cut interest rates twice this year for a total of 75 basis points, worries of inflation under a Trump presidency have caused uncertainty on how cuts will continue in 2025.
In its 2025 outlook, Vanguard priced in a rate of 4% by the year’s end, and Goldman Sachs expects a terminal interest rate of 3.25% to 2.5% for the Trump administration.
Jeremy Leach, chief executive officer of Managing Partners Group, said: “Fixed income funds have seen increasing inflows recently and this new research shows that institutional investors and wealth managers are set to significantly increase allocations over the next 18 months.
“Particularly as we enter a period of high volatility, the benefits of diversification and a regular income means fixed income is an increasingly popular choice for institutional investors and wealth managers.”
Most investors believe their allocation to bonds will rise by 10% to 15% in the next 18 months, while near a quarter see allocations rising beyond this share. Just 10% of investors believe allocation will increase by 10% or less. Currently, just 17% of investors say they are overweight fixed income.
See also: Will bond yields stay higher for longer?
