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Bank
of America Merrill Lynch (BAML) said that in the week to
Wednesday, bond funds had taken in $4.6 billion in new money,
with the inflow concentrated in high-grade debt.
The U.S. Federal Reserve is all but certain to raise interest
rates next week after a run of strong economic data. Many now
reckon policy will be tightened this year more than previously
expected, possibly as many as four times.
But world stocks are a whisker off all-time highs amid optimism
about global economic recovery and robust company earnings, plus
the potentially reflationary effects of mooted added spending by
the new U.S. administration.
U.S. stocks received a $7.2 billion inflow while European
equities took in $1 billion, the latter seeing inflows for six
out of the past seven weeks as economic recovery gathers pace.
Emerging markets too, despite witnessing a pre-Fed retreat in
asset prices, enjoyed inflows signaling that jitters over U.S.
monetary policy had not entirely eroded appetite for the asset
class.
Emerging equity funds received $700 million, while bonds posted
their sixth week of inflows with $2.1 billion. Local currency
emerging debt was in favor, with their biggest weekly inflow in
nine weeks at $800 million.
The European Central Bank pledged on Thursday to retain an
aggressive stimulus policy at least until the end of 2017 but
signaled less urgency for more policy action. That is leading
money markets to price in multiple rate rises in 2018.
BAML analysts said years of stimulus in developed countries had
seen bond funds enjoy $1.5 trillion of inflows since 2009, or
some 66 percent of assets under management. It termed this a
period of "feast" in bond markets.
Equity funds in contrast received only $256 billion in this
period, the analysts noted.
But in a sign of the turning cycle, this year's bond flows are
running a whisker below equity funds at $80 billion and $82
billion respectively, BAML added.
Government bond funds saw $500 million flee in the past week for
their sixth week of losses. That comes as ten-year U.S. Treasury
yields hover at three-month highs and German yields have surged
to nearly six-week highs following the ECB's signals.
(Editing by Hugh Lawson)
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