The fourth week of April saw EPFR Global-tracked Bond Funds record their fourth biggest inflow YTD with U.S. Bond Funds accounting for over 75 percent of the headline number. Emerging Markets Hard Currency, High Yield, Bank Loan and Total Return Bond Funds all took in over $1 billion during the week while Europe Bond Funds were the only major geographic group to post outflows.
At the asset class level, Inflation Protected Bond Funds posted consecutive weekly outflows for only the second time since the start of 2Q16. Flows into U.S. TIPS Funds, which peaked in early February, have been sliding steadily since then with the latest week’s outflow the biggest in over nine months. Although renewed interest in the U.S. reflation story did not move the needle for TIPS Funds, it did rekindle investor interest in Bank Loan Funds, which extended an inflow streak stretching back to the first week of November.
While it is too early to call the Eurozone’s latest recovery a reflation story, recent macroeconomic numbers from the currency union are prompting fixed income investors to ask just how long the European Central Bank will maintain its current quantitative easing program. As a result, Europe Bond Funds posted outflows for the 11th time in the past 13 weeks with dedicated Spain Bond Funds seeing redemptions hit levels last seen in 3Q15.
Alvin Baker, a senior analyst with EPFR Global sister company IGM, believes that “the exit sequencing banter will start in earnest after the [ECB’s] next staff forecast, which should significantly revise upward growth forecasts and, perhaps, tweak inflation forecasts near enough to target.” That, he argues, should be enough “to silence the ECB doves, as exit strategies can finally be justified.”
With Global Bond Funds still taking in solid sums of fresh money, and allocating a significant share of these inflows to Europe, net selling YTD of European debt by all EPFR Global-tracked Bond Funds remains relatively subdued.
Emerging Market Bond Funds extended their current inflow streak to 13 straight weeks. Investors favored diversified funds with broad geographic and hard currency mandates. The top five single country allocations for the diversified Global Emerging Markets (GEM) Bond Funds are currently Brazil, Mexico, Indonesia, Russia and Turkey.
Among the U.S. Bond Fund groups, Intermediate Term Blend Funds recorded the biggest inflows in cash terms and Long Term U.S. Government Bond Funds in flows as a % of AUM terms. Mortgage Backed and Inflation Protected Bond Funds were the only groups to record outflows during the week.