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FUND FLOWS: High-Yield Funds Feel the Pinch

Investors pull money from junk bonds one week ahead of widely anticipated Fed rate hike.

Junk bond funds experienced their biggest redemptions since mid-December and flows into EPFR Global-tracked U.S. Money Market Funds hit a three-month high during the first week of March as investors looked ahead to next week’s meeting of U.S. Federal Reserve’s Open Markets Committee. The FOMC’s mid-month meeting is now widely expected to conclude with the third hike in U.S. interest rates since the current tightening cycle began in late 2015.

The run of fair-to-good economic data—and the reflationary agenda promised by President Donald Trump—underpinning the conviction that U.S. rates will rise again next week kept the money flowing into U.S. Equity Funds. It also prompted investors to pencil in stronger demand for emerging markets commodities and other exports. Despite the looming rate hike both Emerging Markets Equity and Bond Funds recorded inflows, with commitments to the latter jumping to a five-week high.

Overall, nearly $12 billion flowed into all Equity Funds during the week ending March 8 while Bond Funds absorbed $4.6 billion and Money Market Funds took in a net $26.6 billion.

At the country and asset class level Mortgage Backed Bond Funds saw their longest inflow streak since early 4Q16 come to an end and Dividend Equity Funds experienced net redemptions for the first time since late January while Municipal Bond Funds posted consecutive weekly outflows for the first-time year-to-date. Investors pulled over $200 million from Russia Equity Funds for the second week running, extended Brazil Equity Funds’ longest inflow streak since early 2Q16 and committed the largest amount to U.K. Equity Funds in over a year.

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

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