The market’s conviction that U.S. Federal Reserve policymakers will hike interest rates again at next week’s meeting remains at “near certainty” levels. For investors, however, that is currently the lesser of a number of evils on the immediate horizon including North Korea’s latest missile test and the stalling of U.S. President Donald Trump’s economic agenda. The first week of June saw all EPFR Global-tracked Bond Funds record their biggest collective inflow since midway through the first quarter of 2015, while flows into U.S. Bond Funds climb to a 17-week high, taking year-to-date inflows past the $165 billion mark, as investors put safety over returns.
For the moment, this spike in risk aversion has bypassed Emerging Markets Equity and Bond Funds. The former extended their longest inflow streak since the start of 2013. The latter posted inflows in excess of $2 billion for the ninth time in the 23 weeks year-to-date. Investors also continued their recent rotation to European assets, with combined inflows for Europe Equity and Bond Funds totaling $2.6 billion, ahead of legislative elections in the U.K. and France and the European Central Bank’s June meeting.
Overall, EPFR Global tracked Bond Funds absorbed $15.9 billion during the week ending June 7 and Money Market Funds took in $15 billion while a net $1.3 billion flowed out of Equity Funds.
At the asset class and single country fund level, flows for Municipal Bond Funds rebounded to an eight-week high and Mortgage Backed Bond Funds extended their longest inflow streak since a 32-week run ended during the third quarter of last year. Redemptions from Sweden Bond Funds hit their highest level in eight months, Italy Bond Funds recorded outflows for the eighth consecutive week and investors pulled another $540 million out of U.K. Equity Funds.