EPFR-tracked Bond Funds recorded their 22nd consecutive inflow going into the third week of August. But the latest inflow was the smallest since the current run began in mid-March, with Global Bond Funds taking in less than $1 billion for the first time in 11 weeks, Emerging Market Bonds seeing their 28-week inflow streak snapped and flows to U.S. Bond Funds dropping to a six-week low.
At the asset class level, redemptions from Convertible and High Yield Bond Funds hit four and 22-week highs respectively. Bank Loan Funds experienced net redemptions for only the fourth time year-to-date, Total Return Bond Funds posted inflows for the 29th straight week and Mortgage Backed Bond Funds recorded their sixth consecutive weekly inflow.
Funds with investment grade corporate mandates remain popular with investors focused on the U.S. Short, Intermediate and Long Term U.S. Corporate Bond Funds all attracted inflows in excess of 40 basis points of AUM. Short Term Corporate Funds last posted outflows in late January, Intermediate Term Corporate Funds in mid-December. Current market expectations for further U.S. interest rate hikes are around 40 percent for December and 50 percent for late first quarter of 2018. David Ader, Informa Financial Intelligence's chief macro strategist, concurs with this muted take on interest rates but cautions that, "there's no reason to think [the Fed's] balance sheet reduction plans have changed. I expect that to start to September."
Asia Pacific Bond Funds, meanwhile, recorded their 27th outflow in the 33 weeks year-to-date, as investors continue to bypass a region where the Bank of Japan is buying and holding vast amounts of new sovereign issuance. Japanese investors are among those looking elsewhere: as the chart below shows, Japanese investment in overseas notes and bonds is on the rise.
Europe Bond Funds posted inflows for the fifth week running with U.K. Bond Funds seeing the biggest influx of new money among the Europe Country Bond Fund groups.
Both Emerging Markets Local and Hard Currency Bond Funds recorded modest outflows during the second week of August as investors gravitated to funds with mixed, short term mandates. At the country and regional levels, the latest flows showed a response to the tensions between North Korea and the U.S. with redemptions from Korea Bond Funds hitting a five week high.
Cameron Brandt is Director of Research for EPFR Global, an Informa Financial Intelligence company.