Investor redemptions of long duration bonds have run into their seventh week and reflect concerns about bond markets in light of central bank actions, says Bank of America Merrill Lynch (BoAML).
Investors prefer short duration bonds and their preference for these bonds is at its highest since the 2013 ‘taper tantrum’ when the Federal Reserve started reducing the amount of money it put into the economy through quantitative easing (QE).
Long duration bonds have durations of six years or more, while short duration bonds have durations of four years or less.
BoAML said its private clients were also selling “bond proxies”, which the bank said corroborated fears over “peak liquidity”. Bond proxies include dividend and low-volatility funds, as well as securities in telecom companies and utilities, while peak liquidity refers to the idea that excess liquidity offered by QE is ending.
Weekly flows to bonds were $2.6 billion (€2.4 bonds) globally, while equities saw outflows of $3.1 billion, said BoAML based on its own figures and flow data from EPFR Global for the week ending October 13.
However, the BoAML ‘Flow Show’ report – where the figures are published – shows that the emerging market “renaissance” continues, with $52 billion inflows to emerging market equities and debt funds in the past three months. This contrasts with “ongoing European disdain” represented by 36 straight weeks of equity outflows.
In the past week, inflows to emerging market equities were the highest in eight weeks, at $2.5 billion.
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