Further interest rate rises and inflation are the biggest concerns pension funds and other institutional investors have about the fixed income market. This is according to new research from Aeon Investments, the London based credit-focused investment company, which surveyed professional investors in Europe and the US who collectively have around $437 billion in assets under management.
Some 85% of survey respondents said they are concerned about further rises in interest rates, with just over one in three (35%) saying they are ‘very concerned’. The corresponding figures for rising inflation are 80% and 30%, and for central banks tightening policies, the figures are 77% and 27% respectively.
Some 76% said they are concerned about poor yields on many traditional fixed income assets (28% are very concerned), and 75% said this about their falling valuations (22% said they are very concerned about this).
When it comes to official forecasts about inflation, 55% of professional investors believe US figures will be higher than the current Federal Reserve forecasts, and 49% said this about the Bank of England’s inflation predictions. Some 55% of survey respondents believe the European Central Bank’s forecasts are too conservative.
“Many investors are clearly concerned about the prospects for the bond market and judging by their views on the inflation predictions of major central banks, many may feel the fixed income market will continue to struggle for some time. Many investors are reallocating fixed income investments to other asset classes that either provide the potential for capital growth or are expected to produce a more attractive yield on a risk adjusted basis. We are certainly seeing a significant increase in enquiries from investors for opportunities in structured credit.”Evgeny van der Geest, Managing Director, Aeon Investments