According to BofA Merrill Lynch Global Research report inflows into Investment Grade (IG) funds have slowed down over the past weeks. Is this temporary or more the result of declining yields making high-quality credit unappetizing now?
BofA Merrill Lynch Global Research think this is just a breather and that inflows will continue and strengthen for an asset class the ECB has not even started buying yet.
"However, note that high-grade and commodities were the sole asset classes that recorded inflows last week. Investors are retreating from assets that now are yield deeply negative (govies) or have dubious outlooks on the back of lowflation concerns (equities). Monthly data released by EPFR reveal that equity funds suffered their biggest outflow in 18 months, conversely high-grade funds recorded their largest inflow in 12 months" says BofA Merrill Lynch Global Research report.
High grade funds had yet another week of inflows, the tenth in a row; but the smallest in seven weeks. On the other hand, high yield fund flows remained in negative territory, for a second week. Note that while high grade has seen $12bn of inflows since early March, high yield is up only by $1bn.
Government bond fund flows remained in negative territory, recording another outflow over the past week, the highest in 27 weeks.
Equity funds did not see any respite on the recent outflows saga. They recorded their 15th week of consecutive outflows. Last week’s outflow raised the total outflows for the year to over $32bn.
Money market fund flows dipped back into the negative territory, with a sizable outflow. EM global debt fund flows were muted last week. A marginal outflow was recorded; the first in 13 weeks.
Commodity funds continued their strong track record and had their fourth week of successive inflows; the 19th so far this year. The asset class has had only one week of outflows since the start of the year.
“Looking at duration, it seems that investors flocked into the belly of the curve. Short-term and long-term IG funds recorded outflows last week” adds BofA Merrill Lynch Global Research.
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