By Michael Aneiro
JP Morgan says global retail investors bought close to $680bn of bond funds in 2012, surpassing the previous peak seen in 2009, all while selling $23bn of equity funds in the year, making the gap between bond fund and equity fund buying also the highest on record.
JPM says the amount of bond funds bought during 2012 is more than double what retail investors bought in 2011, while 2012 represents the fourth straight year of very strong bond-fund buying compared to equity funds.
What to expect in 2013? Here’s JPM:
Our analysis on bond supply and demand calls for a reduction in bond supply and increase in bond demand in 2013 pointing to a continuation of the current supportive environment for bonds. Supply is set to decline by around $200bn mostly due to reduced government bond issuance. At the same time, demand is expected to rise. G-4 central banks bought around $600bn of bonds in 2012. We see a major step up this year to $1.2tr, mainly because we expect the Fed to buy around $1tr of bonds, split evenly between MBS and Treasuries. The Bank of Japan is expected to buy a little shy of ¥15tr ($180bn) of JGBs next year, between its Asset Purchase Programme and Rinban operations. That said, we highlight the risk of significantly higher purchases, after the change in Bank of Japan leadership next April. That means that the official sector buying ($1.7tr including $500bn from FX reserve managers) is set to absorb around 80% of this year’s net bond supply.