Global Investors Bet on Rising Hopes for Climbing Bond Yields

Amidst the worries of Eurozone debt crisis, investors and fund managers began 2012 in a cautious mood by cutting equity exposures to lowest levels since October.

In a recent Reuters survey covering 55 leading investment houses in the United States, continental Europe, Britain and Japan fund managers reduced their equity portfolios to 50.5 percent in January.

While allocation to bonds, which include government and corporate debt, rose to 36.2 percent, the highest in at least a year, as Japanese investors raised their average bond allocation to a record high.

Global asset managers raised their suggested exposure to bonds to 10.1 per cent this month, up from 8.1 per cent a month earlier, on hopes that major government bond yields will climb slowly this year.

U.S., German and British 10-year government bond yields are expected to rise around 50 basis points, while German Bund yields will pick up from their current rock-bottom rates.

Meanwhile, the Reuters report stated that U.S. asset managers cut equity allocation to 63.0 per cent, pushing Eurozone exposure to just 10.7 per cent and their bonds weighting rose to 30.6 per cent. While Japanese fund managers raised their average bond allocation to a record high of 50.2 per cent by cutting their stock weighting.

But yield-seeking British investors began to return to riskier assets such as stocks. At the same time, worries about debt crisis encouraged them to increase their bond weightings too.

Italy's portfolio managers also raised equity allocation to 43 per cent and as well as bond allocation to 44 per cent, but cut cash holdings.