It all sounds worryingly familiar. Mutual funds are experiencing record inflows, issuance is at record highs, prices of the securities concerned seem to be immune to bad news, and the investment banking divisions covering these popular products are going gangbusters.
This time, it's not equities that are booming, it's bonds. Will they crash too?
According to the Investment Company Institute (ICI) in the US, there was nearly $150 billion net new cash flow into US bond funds last year, following nearly $100 billion in 2001. Inflows into government bond funds topped $40 billion in the second half of last year, money market funds are doing well, savings rates are up. Insurance companies also have a surfeit of cash to invest, and they, along with almost everyone else, are avoiding stocks.
Compare that to equity inflows at the height of the bubble: more than $300 billion went into equity funds in 2000, according to the ICI.
Bond issuance has responded to the demand for product. In the first two months of the year $125 billion was issued in the US, 25% more than in the same period last year. A desire to fund early before the invasion of Iraq surely played a role, as did the lure of historically low interest rates.