A week after posting their first outflows year-to-date, EPFR Global-tracked Bond Funds were back in the money as flows into U.S. Bond Funds rebounded, helped by renewed doubts that the new U.S. administration will succeed in implementing many of its reflationary policies. This uncertainty about likely U.S. growth rates and the degree to which they might drive future interest rate hikes was also reflected in the flows to Japan and Emerging Markets Bond Funds, which hit 11- and 35-week highs respectively during the third week of March.
At the asset class level, Bank Loan Funds recorded their smallest inflow since late November, Inflation Protected Bond Funds attracted the least fresh money since their current inflow streak began in early December and High Yield Bond Funds recorded their third straight outflow.
Also recording outflows were Europe Bond Funds which saw redemptions climb to a 16-week high. Five funds, all Europe-domiciled, accounted for the bulk of the headline number. The prospect of the European Central Bank switching to a tightening bias, and the risks that one of the current Eurozone members will exit the currency union so it can redenominate its debt in its domestic currency, are keeping investors on edge. However, fears that France will be that country are ebbing with France Bond Funds extending their longest inflow streak since early 4Q16.
Both Emerging Markets Hard and Local Currency Funds took in over $1 billion during the week. Investors gravitated to geographically diversified funds with sovereign or mixed portfolios at the expense of EM Corporate Bond Funds which recorded their biggest weekly outflow in over three years.
The renewed interest in U.S. Bond Funds saw all the major subgroups except U.S. High Yield Bond Funds post inflows during the week. Intermediate Term Mixed Funds attracted the biggest inflows in cash terms and Long Term Government Bond Funds in flows as a percent of AUM terms. Recent drops in oil prices, signs of stress among retail issuers and fears U.S. growth this year will not be as strong as hoped for are all weighing on junk bond funds.