MPG: Money to flood into fixed income markets ahead of Fed rate cuts

September 25, 2024

Fixed Income

Dollar - obligaties (QuinceCreative, Pixabay)

New research from international asset management company Managing Partners Group (MPG) reveals that with a record $6.5 trillion sitting in US money market funds, institutional investors and wealth managers predict an unprecedented surge in demand for bonds over the next few years as the US Federal Reserve continues to cut rates – and believe the switch from cash to bonds should have been made before The Fed starts cutting rates in order to avoid missing out on potential returns.

Research among global institutional investors – pension funds, insurers and family offices - and wealth managers found over half (56%) predict between $2 trillion and $2.5 trillion will leave US money markets and return to the bond market over the next couple of years. Two fifths (40%) think this will be as much as between $2.5 trillion and $3 trillion, and 3% say this will be over $3 trillion. Just 1% say this will be less than $2 trillion.

With this potential surge in demand for bonds so exceptionally high, almost all (99%) institutional investors and wealth managers surveyed said they believe investors should have got ahead of this shift from cash to bonds and switch before the US Federal Reserve started to cut, in order to avoid missing out on the potential returns. Around a quarter (25%) strongly agree with this view.

MPG’s survey of global institutional investors and wealth managers with total assets under management of €136 billion under management found that almost all (96%) agree that with inflation falling and historically high interest rates, investment strategies are looking again to fixed income for stability, diversification and income in portfolios, and at the same time equities are beginning to look expensive. Around two fifths (39%) strongly agree with this view.

Almost all (91%) also agree that in today’s environment, investors should allocate more to fixed income than they have done historically, the study by MPG which runs the Melius Fixed Income Fund found. Just under a fifth (18%) strongly agree with this view.