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BofA: Follow The Flow: Consolidation Phase'

Sunday, June 28, 2020/ Editor -  

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  • Follow The Flow: Consolidation phase
  • BofA Global Research Media Relations

        
                                                                                                                                         
Dubai, United Arab Emirates, June 28, 2020: Refer to important disclosures at the end of this report (see link below). Please note, you may quote directly from this research report solely in your reporting as a member of the media; however all quotes must be cited as having come from a BofA Global Research report. All other copying, redistribution, retransmission, republication and any other unauthorized dissemination or use of the contents of the report or the link thereto are prohibited. If you are interested in interviewing an analyst, your request must be directed to Research Communications & Media Relations.

Follow The Flow

  Follow The Flow: Consolidation phase


•  Amid risk of a 'second wave', the rally in risk assets has paused.
•  Inflows into high-grade and government bond funds continued to slow for a second week.
•  The central bank driven euphoria seems to be in consolidation mode.


Inflows across risk assets slow down
Inflows into high-grade and government bond funds continued to slow for a second week. Amid risk of a 'second wave', the rally in risk assets has paused. The central bank driven euphoria seems to be in consolidation mode. Only two weeks ago, investors across Europe were adding risk at an unprecedented rate. However, the last two weeks saw a marked slowdown of inflows across credit and EM debt space. 


Over the past week…


High grade funds recorded their 12th inflow in a row, although the w-o-w pace has slowed over the last two weeks after registering record inflows in early June. Inflows into IG ETFs have followed a similar dynamic, with last week's inflow the lowest since the last week of March. 


High yield funds enjoyed another inflow, the 13th in a row, with the w-o-w pace stabilizing at around $1.5bn. Looking into the domicile breakdown (chart 13), European, global, and US-focused funds all recorded inflows, with the former underperforming.


Government bond funds recorded an inflow, the second in a row. Money market funds saw a small outflow, the first in five weeks. Fixed income funds enjoyed their 12th inflow in a row, the smallest in 11 weeks. Equity funds recorded an inflow, only partly offsetting last week's strong outflow, in a sign investors' sentiment for European risk assets remain heavily dependent on the evolution of the health situation worldwide.
Chart 1: Lack of inflation has benefitted credit & govt bond funds, while loan funds have suffered
 

Source: EPFR Global. YTD cumulative flows % of AUM

 

Global EM debt funds recorded their second weekly outflow in a row. Commodity funds recorded a strong outflow, the largest since July '13.
On the duration front, inflows were recorded across the IG curve. Front-end funds continued to enjoy inflows for the fourth week in a row whilst long-term funds outperformed as investors seek quality yield, amid record low yields and lack of inflation.
 


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