Central banker reassurance tempts investors back to bond funds

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Investors across the globe returned to bonds fund last week after central bankers calmed the markets by reassuring that the end of quantitative easing is not imminent.

Fund flow data provider EPFR Global says the bond funds it tracks benefitted from a $2.11bn in inflows during the week ending 3 July, bringing to an end the four-week, $57.8bn outflow streak that had blighted the portfolios.

Bond funds had been hit especially hard in the aftermath of the Federal Reserve’s suggestion that the pace of its $85bn-a-month bond-buying programme could slow later this year, with a record $23.3bn being pulled from the portfolios in the previous week.

However, central bankers moved to reassure the markets last week. Fed officials stressed that any tapering plans were reliant on strong improvements in the US’ economic health, while the Bank of England and the European Central Bank suggested interest rates will remain low for some time to come.

Equity funds, meanwhile, took a net $5.98bn over the week to 3 July with money from retail investors reaching a 13-week high. UK, German and Swiss equity funds were popular with investors, although Canadian and Australian equity funds were among the few to record outflows.

Japanese equity funds saw inflows jump to a six-week high as investors moved to position themselves for an earnings season that is likely to be positive, especially for exporters that have benefitted from the weaker yen.

Investors also returned to emerging market equity funds, but emerging market debt portfolios were struck by their sixth straight week of net redemptions. Although outflows in the wider EMD fund space moderating, portfolios focused on EM corporate bonds suffered their highest weekly redemptions since the current financial crisis began.