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Investors give investment-grade corporate debt another look

EPFR-tracked US Short Term Corporate Bond Funds set a new weekly inflow record and their intermediate term counterparts posted their highest total since 1Q17 during the third week of January as investors revisited an asset class they’d pulled back from ahead of December’s interest rate hike. With the market expectations for US rate hikes in 2019 down from three to between zero and one, Emerging Markets Equity and Bond Funds are also seeing renewed investor interest, as are Total Return and Mortgage Backed Bond Funds.

While these fund groups soaked up fresh money, the overall flow picture remained subdued – especially when compared to the record setting inflows enjoyed by many fund groups early last year – with flows into all EPFR-tracked Bond Funds coming in at a $5.2 billion while Equity Funds recorded a collective net outflow of $523 million. EPFR’s ‘Bear Detector’ model, which tracks four data points derived from core data sets (those recorded as triangles are most recent), is now signalling a very high probability of a downturn.

Among the major regional fund groups, those dedicated to Europe continue to struggle as the UK remains on course to leave the EU in late March without a transition deal, lacklustre macroeconomic data from the Eurozone and Italy’s flirtation with a technical recession keep investors on edge. Europe Bond Funds posted outflows for the 21st time in the past 24 weeks and Europe Equity Funds for the 45th time in the past 46 weeks.

At the single country and asset class fund levels, redemptions from Italy Equity Funds climbed to a 35-week high and Mexico Equity Funds recorded their biggest outflow since late 1Q17 while Inflation Protected Bond Funds posted consecutive weekly inflows for the first time since early September and flows into Mortgage Backed Bond Funds hit levels last seen in 3Q14.

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