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Negative yields tighten grip on fixed income universe in mid-3Q19 with mixed results for mutual fund flows

The second week of August saw the yield curves for two and 10-year US treasuries invert for the first time since 2007. The third week of August saw a major Danish bank offer qualified buyers a mortgage that will cost the borrower less than the face value to pay in full. With the unusual become normal in global debt markets, investors found their compasses spinning wildly going into the second half of 3Q19. As a result, they stuck to their ‘safety first’ strategy that has seen over $425 billion flow into EPFR-tracked Bond Funds so far this year while over $215 billion has flowed out of Equity Funds.

Despite the latest squeeze on yields from over $16 trillion worth of global debt offering negative yields and the latest round of interest rate cuts by central banks in countries ranging from the US to Brazil, risk appetite remains subdued with Emerging Markets Equity and Bond and Bank Loan Bond Funds all extending their current outflow streaks during the week ending August 21. Investors also took out some insurance against stagflation, with Inflation Protected Bond Funds recording their biggest inflow since 1Q18.

Overall, EPFR-tracked Bond Funds posted a collective inflow of $14.9 billion during the third week of August and Money Market Funds absorbed over $30 billion while investors pulled another $285 million out of Alternative Funds, $1.4 billion from Balanced Funds and $14.2 billion from Equity Funds. Once again, Equity Funds with socially responsible (SRI) and environmental, social and governance (ESG) mandates escaped the broad redemption trend, with the latest inflows taking their year-to-date total over the $31 billion mark.

 

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