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FUND FLOWS: New Money Goes to Bond Funds

U.S. bond funds take in largest quarterly inflows since 2012 as investors turn cautious toward U.S. reflation story.

Flows into EPFR Global-tracked Bond Funds during early April hit their second highest weekly total YTD, and third highest since the first week of 2H16, as investors took a more cautious view of the U.S. reflation story.

Inflation Protected Bond Funds posted their first outflow since early December while flows into High Yield Bond Funds jumped to a 16-week high. At the geographic level, Global and Emerging Markets Bond Funds both absorbed around $2 billion for the third straight week and U.S. Bond Funds closed the book on their biggest quarterly inflow since 3Q12 by taking in over $7 billion.

Bank Loan Funds did extend a run of inflows stretching back to early November and Total Return Bond Funds enjoyed another good week while investors grappled with the short-term direction of U.S. monetary policy.

According to David Ader, Chief Macro Strategist for Informa Financial Intelligence, “The Fed’s assumption of three hikes by the year’s end [remains] in play although the market continues to disagree — with good reason — with that total. Some of that skepticism is based on economic data (auto sales is the most recent example). But some is tied to the interplay between straightforward rate hikes and any reduction in the Fed’s balance sheet. This interplay is, of course, a huge uncertainty. And it’s that uncertainty which makes this hiking cycle different from all other hiking cycles.”

With hopes rising that France’s presidential election, which kicks of this month, will not result in populist candidate Marine Le Pen occupying the Élysée Palace, Europe Bond Funds snapped a three-week outflow streak by posting their largest inflow since early January. Funds with corporate investment grade mandates accounted for over half the headline number.

Emerging Markets Bond Funds extended their solid start to the year with both Hard and Local Currency EM Funds taking in around $1 billion. At the country level Hungary and Romania Bond Funds both posted large outflows while Russia Bond Funds took in fresh money for the 23rd straight week.

The latest political upheaval in South Africa, and the ratings downgrade that followed, had no discernable impact on South Africa Bond Funds which posted modest inflows. Technical analysis by EPFR Global sister company Informa Global Markets (IGM) highlighted the trend of rising prices for South African 10-year government bonds (see chart below), with Analyst Natalie Rivett noting that two major fund management firms see “outperformance of South African assets in the medium-term, despite the fraught political situation. President Zuma's cabinet reshuffle may have accelerated his own political demise, while domestic data is improving and global markets remain favorable to EM in general.”

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

TAGS: Mutual Funds
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