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Forex Flash: Risk appetite for fixed income on the rise – Goldman Sachs

FXstreet.com (Barcelona) - The dramatic growth of retail demand for fixed income assets to the detriment of equity has been one of the most salient post-crisis developments. According to the Economics Research Team at Goldman Sachs, “This shift in fixed income allocations, which has largely benefited corporate bonds, has fuelled concerns among fixed income investors about the risk of an abrupt reversal of fund flows.

The flipside of these concerns is a certain amount of enthusiasm among equity investors about the prospect of a ‘Great Rotation’ from fixed income into equity.” In our view, the ‘Great Rotation’ will likely skip the corporate bond bucket in fixed income.

Perhaps more importantly, even if we thought the ‘Great Rotation’ would cause mutual fund outflows from the corporate bond market, we do not think the corporate bond market is at much risk from a rotation out of fixed income mutual funds. “Our assessment of the evidence leads us to conclude that for both equity and fixed income ‘flows don’t matter’, that is: the price impact of fund flows is negligible. This evidence is robust to numerous checks.” the team adds.

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