Institutional investors are stocking up again on German government bonds (Bunds), according to a Spezialfonds analysis conducted by Universal Investment, which shows that allocation to the asset class makes up more than 35% in institutional investors’ portfolios, an allocation level not seen since 2013.

The coming months will show whether the inverted yield curve on Bunds is the harbinger of a recession or a turning point in inflation, according to the analysis.

Long-term yields are currently below the rates for short-term ones, and could thus explain the strong rise caused by many short-term Bunds, it added.

Government bonds overall make up about 10% in total in institutional investors’s portfolios, according to the study.

The demand for US Treasuries has remained stable over the course of the year, while investments in French government bonds have declined, playing a significantly smaller role in investment decisions over the past two years.

The demand of institutional investors for emerging markets government bonds has also fallen by around two percentage points in one year, it added.

Pension schemes continue to invest in Spezialfonds

Pension schemes have increased the amount of investments in Spezialfonds last year by €56bn, up from €37bn in 2022, according to the fund industry association BVI. Pension funds are the biggest investors in Spezialfonds with €669bn assets deployed.

Overall, open-ended Spezialfonds remained resilient during a turbulent 2022, receiving inflows totalling €62bn.

Assets under management of German fund companies fell by 12% at the end of 2022 to €3.80trn, compared with €4.31trn recorded at the beginning of the year, according to BVI.

The largest share of assets is under the management of open-ended Spezialfonds with €1.94trn. Open-ended retail funds manage €1.28trn, and discretionary mandates €529bn.

Dirk Degenhardt, president of BVI, said: “Russia’s invasion of Ukraine was a turning point. The war, exploding energy prices and rising inflation rates led to significant declines in equity and bond markets and unsettled investors. Nevertheless, investors have reacted very cautiously and prudently, because we have not seen high outflows, but rather a reluctance to buy.”

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Luigi is IPE's Berlin-based DACH correspondent. His coverage includes regulation and the latest pensions and investments trends, and, being a native Italian, he also covers Italy’s pensions market. He has reported from Italy and Germany on international politics and business for European and US publications including USA Today, Bloomberg BNA and for the investigative magazine L’Espresso. He was previously Germany correspondent for Mergermarket covering M&A.View full Profile

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