The (well-remunerated) efforts of bond fund managers

Are we facing a new sovereign debt crisis? It is probably too early to say, as many market participants believe, but the experience of recent decades has shown just how quickly markets can shift from caution to mistrust and how tensions can spread from one country to another.

But whilst we are not yet in the midst of the perfect storm that hit the bond markets in 2022, in 2006, in 1999 and, above all, in 1994 – when fund managers were caught off guard by the unexpected rise in interest rates, with portfolios heavily weighted towards longer maturities – the first downpours have already begun to make themselves felt. 86 per cent of bond funds have recorded negative returns over the last month, with some falling by more than 5 per cent. We are talking about financial products in which Italians have invested 492 billion.

This debacle has been felt not only by fund managers who have to contend with the investment policy set out by each individual fund – which effectively limits their room for manoeuvre – but also by those without benchmarks, who have greater freedom to choose the securities to include in their portfolios. The decline is widespread. And the outlook is not promising: everything depends on the extent to which the market has already priced in the further interest rate rises on the horizon, their timing and the suddenness of the movements.

One must also ask how bond funds continue to attract new inflows: in the first seven months of 2026, net inflows exceeded 4.4 billion euros. Those drawn to them are mainly savers who are wary of the stock markets or, to put it another way, those who do not wish to shoulder too much risk and are content with minimal returns – but not returns close to zero or even negative, as is now so often the case.

Returns on bond funds, which must in any case – whether the results are positive or negative – bear the burden of costs that erode performance to the detriment of investors. The average annual fees, which fund managers and distributing banks share out even during periods of market downturn, stand at 1.04 per cent and, in extreme cases, can exceed 4 per cent.