Capitulation of bond fund flows |

By on April 17, 2022 0

This post was first published on TopDown Charts

  • Global bond yields hit new 7-year highs as market participants expect more than 250 basis points in Fed rate hikes in 2022

  • US bond fund flows are decidedly negative as equity inflows continue

  • Without a good historical comparison, investors should continue to tread carefully

Global bond yields continue to climb. Some are even venturing out of negative return territory. Imagine that. Domestic investors are not very satisfied, as evidenced by the data on the flow of funds. Just as maturity yield may have regained some shine, negative price momentum dominated the day (as is so often the case). As a result, money moved out of bonds and into equities slightly. This all adds up to what has been a .

The risk goes out

Don’t get too bullish on stocks, though. Although there has been a push back from the mid-March lows among global stocks, selling has re-entered the picture among large and small caps. Additionally, foreign equities suffered a drop in price, down around 2%, although April was a generally positive month for risky assets.

An exodus of obligations

Our featured chart shows how silver has moved over the past few quarters. Following a “sell everything” mindset during the COVID panic more than two years ago, investors bought bonds first, then stocks. Of course, central banks around the world were part of this buying pool in the second quarter of 2020. For equities, it’s not until early 2021 (when the huge fiscal support hit Americans’ current accounts ) that cash flowed into US equities.

Featured chart: Money is jumping ship from fixed income

Historical losses since the beginning of the year

As fiscal support wanes, Americans still have around $2 trillion in excess savings, so we continue to see positive equity flows (which include single issues, mutual funds and ETFs ). Investors are heeding the common narrative that stocks aren’t the worst place to be in times of inflation, at least for now. Meanwhile, the fixed income space has been a rout.

So far in 2022, the overall US bond market is down 8% including dividends, while so-called high-quality companies are down almost 12%. The investment-grade bond ETF iShares (NYSE:) is posting an effective yield to maturity close to 4%, close to the highest level since the GFC.

When will investors buy the bond drop? No sign yet.

Much ink has been spilled about 2022, which is shaping up to be one of the worst years on record in a variety of fixed income niches, which could portend another exodus of investment. The question is, when will investors dip their toe into what could be relatively decent returns relative to stocks?

More take-out sales?

Our weekly Global Cross Asset Market Monitor highlights key events from the latest bond yield breakout. All over the world, rates have reached 7-year highs. While emerging markets is a good analogue at the moment, there is still room, perhaps more than 50 basis points on average in the developed market.

Conclusion : Extreme pessimism abounds in fixed income securities. Yields in developed markets have risen enormously this year amid inflation fears and hawkish sentiment. There is no historical analogue to the current environment, so it is difficult to confidently call a bottom any time soon. Investors are nervous (to say the least), as evidenced by the large bond outflows.