As with other fund groups, flows for EPFR Global-tracked Bond Funds during the third week of February had more than a touch of déjà vu. Once again US, Emerging Markets and Global Bond Funds recorded fair-to-good inflows while Europe Bond Funds saw another $1 billion flow out and Asia Pacific Bond Funds posted outflows for the 52nd time in the 62 weeks since the start of 2016.
There was a similar lack of change at the asset class level, bar some modest inflows for Municipal Bond Funds tied to investors hardening conviction that the Fed will not hike rates at its March meeting. Investors still expect some rate hikes in 2017 (a 15th straight week of inflows for Bank Loan Funds), but believe those hikes will track rather than head off rising prices (another week of inflows for Inflation Protected Bond Funds). Nor do investors expect the current tightening cycle to be aggressive enough to rock the junk bond market or compromise most multi-asset strategies (High Yield, Balanced and Total Return Bond Funds all posted inflows).
Investors do expect some shocks on the other side of the Atlantic as the Eurozone undergoes trial by election and another bout of brinkmanship over Greece’s current debt relief program plays out. Europe ex-UK Regional Bond Funds accounted for the bulk of the week’s headline number for all Europe Bond Funds. According to Alvin Baker, an analyst with EPFR Global sister company Informa Global Markets (IGM), in the short run the European Central Bank appears committed to stimulating the Eurozone’s economy ahead of containing any inflation risks. “It seems the ECB will look beyond inflation to a degree,” Baker wrote recently. “But when the time comes it will have to play catch up, and perhaps [move] quicker than the Fed's more gradual tightening cycle.”
Emerging Markets Hard Currency Bond Funds outgained their local currency counterparts by a 5-to-margin in flow terms with Russia, Korea and Colombia Bond Funds leading the way at the country level. Russia and Colombia are among the leaders YTD when it comes to net buying of emerging markets country debt by all EPFR Global-tracked Bond Funds but South Korea is one of the few markets to see net selling.
Investors looking for US exposure favored funds with investment grade corporate mandates across all durations while US Bank Loan and Inflation Protected Bond Funds attracted similar amounts of fresh money.
Cameron Brandt is Director of Research for EPFR Global, an Informa Financial Intelligence company.