New-Bond Sales Likely to Stay Sluggish

Sales of new bonds, dampened by the recent turmoil on capital markets worldwide, is likely to remain subdued as investors prefer the safety of cash and short-term instruments, the Organization for Economic Cooperation and Development said.

Only 179.7 billion francs were raised on bond markets in the first five months of this year, compared with 208.6 billion francs in the same period in 1993.

Even if volatility, which was extreme in February and March, has abated, “a highly uncertain environment is likely to continue prevailing on the international markets in the near term,” the Paris-based think tank said in a report on financial market trends.

A large number of investors have shifted funds to cash or shortened the duration of their bond portfolios, and it’s unclear when funds will flow back into longer-dated bonds, it said. In times of uncertainty, investors tend to switch to short-dated bonds whose prices resist a rise in yields better than longer-dated bonds.