EPFR Global-tracked Bond Funds took in fresh money for the 24th time in the 25 weeks year-to-date during the third week of June, although the headline number–which hit a 28-month high in early June–dropped for the second straight week. Emerging Markets, U.S. and Global Bond Funds all posted inflows in excess of $1 billion while Europe Bond Funds extended their longest inflow streak since the second quarter of 2016.
Flows at the asset class level suggest that investors believe circumstances will curtail the Fed’s ambitions to raise rates again this year and start trimming its balance sheets. U.S. High Yield Bond Funds did experience redemptions, but low oil prices and moves by Amazon that are expected to put more pressure on the bricks-and-mortar segment of the retailing industry had more to do with this that the 0.25 percent hike in US interest rates. Elsewhere, Bank Loan Funds saw a 31-week inflow streak come to an end, Municipal Bond Funds continued to attract fresh money and Inflation Protected Bond Funds posted outflows for the eighth time in the past 10 weeks.
According to Informa Financial Intelligence’s chief macro strategist, David Ader, “the U.S. yield curves current behavior hints at a response slower pace of growth rather than to a few isolated economic reports. In short, the market is at odds with the Fed [over the strength of the economy] which explains why the market odds of one more hike this year are under 50 percent.”
Among the U.S. Bond Fund sub-groups Intermediate Term Mixed Funds recorded the biggest inflows in cash terms and Short Term Government Bond Funds in flows as a percentage of AUM terms. Short Term Mixed Funds posted the biggest outflows in both cash and percentage of AUM terms.
Flows to Emerging Markets Bond Funds are also consistent with the Fed undershooting its tightening goals this year, with the latest inflows extending this fund group’s current run to 20 weeks and over $35 billion. Funds with hard currency mandates outgained their local currency counterparts by a 2-to-1 margin. At the country level China Bond Funds recorded their biggest inflow since late September and Russia Bond Funds extended an inflow streak stretching back to late October.
The inflows recorded by Europe Bond Funds during the week went largely to funds with regional or U.K. mandates and favored funds dedicated to corporate debt over those investing in sovereign bonds. Euro-area investors continue to pile into Short Term Corporate and Total Return Bond Funds while shunning Intermediate Term Government Bond Funds.
Balanced Funds, which can invest in both fixed income assets and equity, took in fresh money for the ninth consecutive week.