GLOBAL - Global fixed-income trading volumes soared by an average 30% worldwide in 2002 as institutional investors ploughed into the asset class.
But record levels are not likely to be repeated in 2003, with pension funds expected to reduce their investments over the next three years, according to data from US-headquartered consultancy, Greenwich Associates.
The highest increase was in the US with an average rise of 39%, followed by Asia (ex-Japan) which was up 30% and European trading which climbed 23%. Only in Japan did trading volumes remain level.
Greenwich, who interviewed some 3868 institutional investors worldwide, said that it was no accident that the steep rise in bond activity mirrored sharp drops in equity markets.
“Today’s market uncertainty has translated into greater demand for fixed-income products by the institutional community,” said Greenwich consultant Robert Statuis-Muller.
The report estimated that global fixed-income volume by institutional investors reached US$25.32trn last year, excluding derivatives or short-term instruments such as commercial paper.
Volume spikes were highest among rate products, the traditional source of market flow, which include government bonds, interest-rate derivatives and agency products.
Government bonds, the widest traded product worldwide, saw trading volume almost double last year from US$5.8trn to US$10.9trn, as European and US investors sought safe havens from corporate bond downgrades.
Credit products also saw trading volumes climb, particularly investment-grade corporate bonds where the increase was nearly as steep as government bonds, from US$2.7trn to US$4.2trn. Significant growth rates were also registered for high-yield- and emerging market bonds, while credit derivatives also remained a popular product.
Greenwich said that the fact that funds and advisors represented over 50% of bond investors was noteworthy.
“Our studies show much less prospective investment by pension funds in bonds over the next three years,” said consultant Dev Clifford.
“Even the most bullish bonds sales people are not expecting fixed-income investment growth to continue at its present level in 2003.”
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