(Bloomberg) -- There are plenty of reasons to be bearish on U.S. government bonds. They pay almost nothing, the Federal Reserve wants to raise interest rates and money managers are largely convinced they're too expensive.
But JPMorgan Chase says mom-and-pop investors may sink $350 billion into debt funds globally this year, adding to the $3 trillion they've already poured into bonds since 2008.
There are two opportunities for fund providers and asset management firms here: to better understand investor sentiment is going to be largely driven by those that are nearing retirement; and for those firms who have overlooked this investment trend, to consider ways to position their debt offerings and capture the expected 'dumb money' inflows from retail investors seeking portfolio protection.
For the Treasury market, that source of demand is proving to be crucial in keeping a lid on yields that serve as the global benchmark for trillions of dollars of debt, especially as foreign central banks cut back their own buying and economists say the Fed will end its near-zero rate policy in September.
In U.S. debt auctions this year, bond mutual funds have bought a record 43 percent of newly issued Treasuries, allotment data compiled by Bloomberg show. That compares with an average of 26% in the prior four years.
It might be tempting for savvy Wall Street types to dismiss the demand as the "dumb money" marking an inevitable market peak.
After all, a record 84% of professional investors in a Bank of America survey released this month said bonds were overvalued. And yields on Treasuries across all maturities - from three months to 30 years - have fallen in 2015.
The benchmark 10-year note is down from 2.17% at the end of last year and less than half the average of about 4.3% in the past two decades.
Yet there's little to suggest that individuals are blindly chasing gains.
Even as U.S. investors have held more money in debt funds since the financial crisis, their allocations as a proportion of total mutual-fund assets has actually fallen in the past two years to 21% as the stock market more than tripled in value, data compiled by JPMorgan show.
That percentage is close to the historical average and still well below the quarter-century high of 31% in 1992, which suggests the shift into bonds can continue.
"It may be that they're sticking with bonds because they're the lesser of two evils," said Kathy Jones, a fixed-income strategist at Charles Schwab, the San Francisco-based brokerage with $2.5 trillion of client assets.
Short-term government bonds are seeing the biggest pickup in demand from U.S. investors, according to the Treasury's auction allotment data. That's because the securities can serve as an alternative to cash for investors scarred by the two stock-market crashes since 1999.
"If you've gone through crashes, you get a little more gun-shy," said Steven Kurashima, a 58-year-old accountant who shifted more money into U.S. debt.
"I just want to preserve capital," Kurashima said from his office in Irvine, Calif. "It's time to put some money into something a little more stable."
Treasuries remain the deepest and most liquid government bond market in the world with $12.6 trillion outstanding. That's more than the combined amount from Japan and the U.K. There are also fewer bargains in equities.
The S&P 500 Index, which reached its peak in February, is trading at 18.2 times reported earnings, close to the highest valuation in five years.
Last month, the Nasdaq Composite Index came within a half-percentage point of eclipsing its dot-com bubble high.
"You can buy a risk-free asset with a low return, and that's your insurance policy against a drop in the equity markets," said Michael Lee, founder of Tiger Wealth Management, which caters to wealthy individuals and smaller institutions, and has been buying Treasuries on their behalf.
A growing number of retirees and pensions are buying bonds for steady, low-risk income in an enduring demographic shift that's set to underpin debt demand for years to come. The number of Americans 65 years or older will increase 14.5 million this decade, the biggest jump on record versus the total population, data compiled by the Census Bureau show.
"You've got people who are growing a bit older, and their risk tolerance is different than it was," Schwab's Jones said.
Savers would still be vulnerable to steep short-term losses if higher U.S. interest rates do ultimately push up Treasury yields, which Wall Street prognosticators have been calling for since the start of last year. While repeatedly scaling back their estimates over that time, they still anticipate yields on the 10-year note will reach 2.7% in about a year, based on the median estimate in a Bloomberg survey.
If that forecast turned out to be accurate, it result in a loss of about 4.5% for holders today, the data show.
"You'll see yields rise," said Justin Lederer, a New York-based interest-rate strategist at Cantor Fitzgerald, one of 22 primary dealers that trade directly with the U.S. central bank. "The Fed is looking to do a rate hike."
Sebold Capital Management's Sean Sebold says overseas bond buyers faced with negative yields as a result of the European Central Bank's quantitative easing will help keep Treasuries in demand.
"The globally-minded people look at the Treasury market and say, 'These are the highest rates in the world,'" he said. "That's going to give people some cover."