After a savage bond selloff in 2022, we believe fixed income markets are now offering good income opportunities at attractive valuations for the first time since the global financial crisis. Against this backdrop, many investors have been increasing the size of their fixed income allocation.
But which areas of the bond universe look most compelling?
Fixed income ETF flows can be a good indicator of investor sentiment, helping to highlight those parts of the market that look most attractive to investors at a particular point in time. If we look at recent data, we can see that investment grade credit has seen particularly strong inflows in recent months.
While government bond allocations dominated fixed income ETF flows for the first nine months of 2022, investor sentiment started to change in the final quarter of the year, when investment grade (IG) credit began leading the pack.
This shift towards IG credit at the end of 2022 was perhaps unsurprising. Heightened geopolitical tensions and fears of a global economic slowdown had driven spreads considerably wider, creating an attractive entry level for investors.
