The week ending Aug. 2 saw investors step their commitments to Europe and Emerging Markets Bond Funds up another notch, with both fund groups recording their biggest inflow since the first week of June, as fears the European Central Bank will call early time on its quantitative easing program and the U.S. Federal Reserve will maintain its one-interest-rate-hike-a-quarter pace continued to wane. Global Bond Funds narrowly kept their streak of $1 billion plus inflows alive and U.S. Bond Funds recorded their 20th consecutive inflow while Asia Pacific Bond Funds suffered net redemptions for the 24th time in the 31 weeks year-to-date.
At the asset class level Total Return Bond Funds recorded their 27th straight inflow, High Yield Bond Funds posted outflows for the sixth time in the past seven weeks and Convertible Bond Funds for the eighth time in nine weeks, Europe Inflation Protected Bond Funds snapped a five week run of outflows and flows to Mortgage Backed Bond Funds hit their highest level since early June.
Flows to Emerging Markets Bond Funds tilted in favor of ones with hard currency mandates as repayment concerns faded in tandem with expectations of U.S. interest rate hikes. Retail commitments climbed to a four week high. Managers of the diversified Global Emerging Markets (GEM) Bond Funds, which have absorbed by far the biggest share of the year-to-date flows to all EM Bond Funds, have been rotating exposure from larger to smaller markets. Coming into the third quarter their allocations to Brazil and Russia were at 16 and 28-month lows, while the average weightings for Nigeria and Ukraine were at levels last seen in the fourth quarters of 2014 and 2011, respectively.
Institutional money drove flows to Europe Bond Funds in early August, with actively managed funds claiming some 60 percent of the inflows and ETFs the balance. At the country level Norway Bond Funds recorded the biggest inflows in cash terms and Denmark Bond Funds in flows as a percentage of AUM terms. At the asset class level Europe High Yield Bond Funds posted their biggest inflow in seven weeks.
Among the U.S. Bond Fund groups only Inflation Protected and Short Term Mixed Bond Funds recorded outflows. Intermediate Term Mixed Funds posted the biggest inflows in cash terms and Short Term Government Bond Funds in percentage of AUM terms. Long Term Government Bond Funds were the week’s best performers.
Cameron Brandt is Director of Research for EPFR Global, an Informa Financial Intelligence company.