Global Fixed Income Flows and Price Action

Inflows to emerging market and investment grade corporate funds continue to contrast with outflows from developed markets government bonds. We also note inflows to inflation funds, which added to duration shortening gels with recent price action. Flows to high yield have been balanced of late, as high yield continues to lag the inflow process seen into emerging markets. We are still in a phase of risk on, but there is evidence that it is beginning to wane.

Inflows to emerging markets remain, although at a slower pace in more recent weeks. Hard currency continues to see the best of the inflows, and in proportional terms blend funds have seen more inflows than local currency funds (which are also seeing inflows). We note downsizing in allocations to Brazil and Mexico versus an upsizing in allocations to Russia and S Africa, while Turkey is now stable in terms of allocations post downgrade.

Inflows to high yield have been less impressive than seen into emerging markets. In the past quarter AUM in high yield is up 1.3% (mostly into USD) compared with a 5.2% increase in emerging markets (mostly into hard currency). W Europe high yield continues to struggle relative to USD high yield flows, which in fact is contrary to a burst in W Europe high yield inflows prior to the post-summer risk-on period.

Inflows to developed market (DM) corporate funds continue to contrast with steady outflows from DM government funds, a theme that has persisted through the past few months. We note a decent build in buying in inflation linked funds, both US and European. Money market funds have also been re-building AUM following prior outflows. We also note a theme of outflows from Eurozone centres versus inflows to select non-Eurozone centres, and these include both the US and UK.