Are bond funds set for significant spike in outflows?

Investors' ongoing fears over the state of the global economy will continue to support bond fund demand in the short term, overshadowing concerns from the regulator they could exit en masse, managers have said.

While the FSA has taken steps to assess corporate bond fund liquidity in the event retail investors all move for the exit at once, managers said the biggest risks to bond markets lie much further in the future. They said short-term sentiment for bonds remains supportive given the general lack of risk appetite. John Pattullo, manager of the £1bn Henderson Strategic Bond fund, said the big threat to corporate bond markets would be a resurgent economy. However, with inflation falling and the economy shrinking, and with measures from the Bank of England – chiefly quantitative easing – fai...