Investors Hedge a Stock Doomsday With Record Fixed-Income Inflows

Investors are amassing an expensive insurance policy against market doomsday.

“Fears of worsening economic momentum coupled with geopolitical uncertainties and corporate earnings revisions that appear to have limited upside has triggered a rush for safety,” said Antoine Lesne, head of SPDR ETF Strategy & Research for Europe at State Street Global Advisors. “Fixed income is thus a good place to be relative to higher potential drawdowns in equity portfolio.”

After climbing up along with stocks, Treasury yields reversed course mid-January, signalling the bond market is prepping for slower growth and inflation.

A rally in German bonds pushed benchmark 10-year yields below 0.1 percent Monday morning to a two-year low on the heels of dimming economic projections.

Investors have added $18.4 billion into U.S.-listed fixed-income funds this year, nearly as much as they‘ve pulled from equity funds -- $18.9 billion -- according to data compiled by Bloomberg. Though some of those outflows may be down to tax-loss harvesting, it’s the most lopsided relationship between the two asset classes since 2016.

Bond Bid

Fixed-income ETF flows are outpacing equities by the most since 2016

Source: Bloomberg Intelligence

Note: Shows U.S.-listed flows for Jan-Feb of each year. 2019 through Feb. 8

Bonds arent rejecting risk altogether, of course: Strong inflows into U.S. high-yield credit persist, even though high corporate debt loads look vulnerable in an economic slowdown.