For the second week running fixed income investors steered above average amounts of money into U.S., Emerging Markets and Global Bond Funds as expectations for the current U.S. tightening cycle dropped from three to four rate hikes in 2017 to one or two. While conforming to the same general pattern as the previous week, flows during the week ending Feb. 8 suggest that risk appetite is on the rise. Emerging Markets Bond Funds posted their biggest inflow since late 3Q16 and Total Return Bond Funds since late 2Q15 while High Yield Bond Funds absorbed another $1.8 billion.
While flows into Emerging Markets Bond Funds continue to climb, the recent pattern favoring funds with hard currency mandates overall and Russia Bond Funds at the country level remained intact. Flows into EM Corporate Bond Funds did climb, hitting a 27-week high, with Asia the preferred region and short-term the preferred duration.
Flows into Europe Corporate Bond Funds were also positive and favored funds with short term (one to four year) mandates. At the country level flows into U.K. Bond Funds climbed to an eight-week high and Norway Bond Funds also took in over $100 million.
U.S. Bond Fund groups flows tilted decisively towards corporate fund groups, with U.S. High Yield and Long-Term Corporate Funds both absorbing over $1 billion and Short-Term Corporate Funds recording their biggest inflow since early 4Q14. Flows into U.S. Inflation Protected Bond Funds climbed to a 14-week high as the market priced in a one-in-ten chance of a U.S. rate hike at the Fed’s March meeting.
Investor appetite for multi-asset exposure climbed several notches, with Balanced Funds recording their biggest inflow since mid-December and Total Return Bond Funds since June 2015. Retail commitments to Balanced Funds, which can invest in both equity and fixed income, hit their highest level in over 18 months.
Cameron Brandt is Research Director of EPFR Global, an Informa Business Intelligence company.