U.S. and Emerging Markets Bond Funds were the only major groups among those tracked by EPFR Global to take in over $1 billion during the third week of April as geopolitical issues, the U.S. Federal Reserve’s intentions for its balance sheet and changing perceptions of the U.S. “reflation story” prompted fixed income investors to reassess their earlier assumptions.
Doubts that increased infrastructure spending and tax reform will give the U.S. economy an extra boost this year, strengthening the value of the dollar and lifting U.S. demand for energy and raw materials, affected a number of fund groups. Inflation Protected Bond Funds recorded outflows for only the second week year-to-date, High Yield Bond Funds experienced net redemptions for the seventh time in the past eight weeks and Balanced Funds saw their two-week inflow streak snap. Bank Loan Funds did take in fresh money for the 22nd straight week. But, with commercial and industrial lending in the U.S. dropping off sharply, commitments to this fund group were the smallest in more than five months.
Europe Bond Funds posted modes inflows, the bulk of which went to Europe Regional, Germany and U.K. Bond Funds. At the asset class level, Europe High Yield Bond Funds, which have seen retail and institutional flows head in opposite directions since mid-January, posted outflows for the fifth time in the past six weeks.
Flows to Emerging Markets Bond Funds favored those with hard currency mandates. Russia Bond Funds continue to attract fresh money and Brazil Bond Funds saw inflows hit their highest level in over two years thanks to expectations that Brazilian central bank will step up the pace of its rate cutting.
Total Return Funds recorded the biggest inflows among U.S. Bond Fund groups in mid-April, with Intermediate Term and Municipal Funds the only other groups to take in over $300 million during the latest week. In contrast to this time last year, when municipal debt investors were faced with major restructuring of Puerto Rico and Detroit’s debt, there are no major defaults on the immediate horizon.