Over the past several years, retail investors in the United States have been moving their money into bond funds at a pace not seen in 23 years.
The movement of money into fixed income funds by individual investors has outpaced contributions into equity funds for 30 straight months.
Retail investors are likely seeking stability after a decade of high volatility in equity markets.
The flow of funds has many analysts and market strategists suggesting a bond bubble or, at a minimum, a general level of overvaluation in the bond market. A rise in inflation or interest rates has the potential to crush bond prices which move in the opposite direction from interest rates.
At the same time, however, current investors could be well rewarded if the United States experiences several years or even a decade Japan style low growth and deflation.
Source: Bloomberg
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