HONG KONG (Reuters)- As risk appetite for equities and property wanes, investors are willing to endure negative real returns for bonds from China, Singapore and Hong Kong because their economies are seen better equipped to tackle inflation.

Conventionally, bond yields have to be sufficient to compensate investors for their holdings as inflation erodes value over time, but those seeking safe haven destinations are choosing to brave lower returns in some markets.

Bond investors are proving less patient with India, Thailand and the Philippines, markets where yields will continue to rise on worries about fiscal imbalances and authorities’ limited effectiveness in overcoming inflation.

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Bloomberg- Hedge funds may be forced to sell bonds and asset-backed debt amid tighter lending standards and poor returns, the European Central Bank said in its six-monthly Financial Stability Review.

Volatile financial markets, investor redemptions and difficulties meeting margin calls have resulted in a “challenging period” for the $1.9 trillion industry and that will continue, the ECB said in the report published today.

“Some leveraged credit-focused hedge funds have been particularly badly hit,” the ECB said. “Moreover, many hedge funds still remained vulnerable to tougher lending stances of prime brokers and a further deterioration in financial markets. Further de-leveraging and forced sales in credit and other asset markets cannot be excluded.”

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