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FUND FLOWS: Bond Investors Seek Safety

Investors seek refuge in safer bonds, pulling money out of high yield and putting it into Treasury funds.

U.S. Bond Funds saw flows stage a rebound in early April as investors sought cover from the trade and technology sector-induced volatility hitting global equity markets. Those investors also saw enough value in European and emerging markets debt to boost their commitments to Europe and Emerging Markets Bond Funds to eight and 12-week highs, respectively, helping EPFR-tracked Bond Funds to post their biggest collective inflow since the second week of the year.

The flows into U.S. Bond Funds strongly favored those dedicated to Treasurys, with Short and Long Term U.S. Government Bond Funds both taking in over $1 billion during the week ending April 4. U.S. High Yield Bond Funds posted their 12th straight outflow, and of the investment grade corporate bond fund groups, only Short Term Corporate Bond Funds attracted any fresh money. Analysis of U.S. Corporate Bond Fund ETFs by EPFR sister company TrimTabs Investment Research suggests that prices—which are still searching for a floor—may have dropped enough to start tempting investors back.

Emerging markets bonds have also sold off at various points this year, and current yields in combination with the U.S. dollar weakness are attracting investor attention with the latest week’s retail commitments the third largest year-to-date. Local Currency Emerging Markets Bond Funds took in over $1 billion for the first time in six weeks and Frontier Markets Bond Funds extended an inflow streak stretching back to mid-December. Europe-domiciled EM Bond Funds accounted for around three-quarters of the week’s total inflows.

Flows to Europe Bond Funds bypassed those with high-yield mandates for the 20th time in the past 21 weeks and Investment Grade Corporate Funds collectively posted their 12th consecutive outflow. Europe ex-UK Regional Funds attracted the biggest share of the week’s headline number and Germany Bond Funds recorded the largest inflow among the Europe Country Bond Fund groups.

Asia Pacific Bond Funds started April by posting their biggest outflow since mid-1Q16, with redemptions from Australian Bond Funds hitting their highest level in over 16 months. This lack of investor appetite is mirrored in Asia’s primary market where, according to Andy Perrin of EPFR sister company Informa Global Markets, “even Chinese issuers, which have almost single-handedly kept issuance headlines ticking over amid the heightened volatility of the past few weeks, have been conspicuous by their absence post Easter.” 


Cameron Brandt is Director of Research for EPFR Global, an Informa Financial Intelligence company.

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