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Has latest Equity to Bond rotation run its course?
The week ending July 17 saw EPFR-tracked Equity Funds post their fourth inflow in the past six weeks, suggesting that investors are finally responding to expectations of lower fixed income yields and the recent records set by benchmark US equity indexes. Between the beginning of December and first week of June, those Equity Funds only recorded five weekly inflows while investors steered over $160 billion into Bond Funds during the same period. Flows into Global Equity Funds in mid-July topped $4 billion for the first time in 16 months and US Equity Funds posted consecutive weekly inflows for only the third time since mid-3Q18.
Investor commitments to Bond Funds remained robust despite rumblings about the US debt ceiling and expectations that both the Federal Reserve and European Central Bank will put fresh pressure on yields during the current quarter. ECB policymakers meet July 24-25 and the Fed’s Open Markets Committee (FOMC) July 30-31.