Weekly dose of fixed income realism, August 26–30

Part 3
Weekly dose of fixed income realism, August 26–30 (Part 3 of 4)

Fund flows into fixed income asset classes recover across the board

Fund flow recovery

Fund flows recovered after steep pullbacks the week before Labor Day. Nonetheless, the major fixed income indices showed weakness for the weak.

The corporate investment bond market (BND) saw inflows of $0.6 billion USD, which was a decent recovery from the $0.1 billion the previous week. Given the upcoming Fed meeting, it’s likely that further inflows will remain limited as investors shed higher-duration assets. Year-to-date inflows have accumulated $43 billion.

US Corporate Investment Grade Bond Market 2013-09-04 (Flows and Volume)Enlarge Graph

The high yield bond market (HYG) stopped the fund flows bleeding from a week ago, and posted an inflow of $55 million. While barely neutral, this is a great comeback after the $2.3 billion outflow the previous week. Last week reversed four consecutive weeks of outflows. Year-to-date outflows have accumulated $6.5 billion, though this figure has was high as $12 billion just two months ago.

US High Yield Bond Market Issuance 2013-09-04 (Flows and Volume)Enlarge Graph

Investors are lukewarm about bonds, given their interest rate sensitivity and the high probability of interest rates correcting upwards again once quantitative easing pullback begins. The next FOMC (Federal Open Market Committee) meeting, when tapering may be announced, is set for September 17 and 18.

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