An economic indicator: Why fund flows should concern investors (Part 7 of 7)
For the past one month, from January 24 to February 26, 2014, investors appear to be piling into exchange-traded bond funds at the fastest pace ever—the latest sign of a bond market revival driven by uneven economic data, emerging-market volatility, and the thirst for income-generating investments. The U.S.-listed bond ETFs have taken in $16 billion this month through February 21, 2014.
The inflow highlights the growing uncertainty about the global outlook for interest rates and economic growth. A slowdown in China and reversals in markets such as Turkey and South Africa have affected some poorer nations’ stocks and currencies this year. Bonds, considered a safer investment, have benefited from the cash torrent in the U.S. and around the globe. The Fed has begun the so-called tapering process, reducing monthly stimulus to $65 billion from $85 billion at the end of last year. But the Treasury prices have risen, driving yields lower, raising questions about the strength of the U.S. economic recovery amid a brutal winter for much of the nation and a rough patch for many markets in poorer nations.
The shift into bonds partly reflects the reversal of last year’s bond-market selloff. Investors withdrew as much as $11 billion between June and December from bond ETFs after the Fed officials in May began signaling that they intended to reduce bond purchases.
Take a look at the detailed analysis on latest weekly flow of fund in Weekly Fund Flows: High yield bonds and leverage loan ETFs.
Browse this series on Market Realist:
- Part 1 - Must know: Why should investors follow fund flow data carefully?
- Part 2 - A quick recap: The fund flows and the ETF market in February
- Part 3 - Market scenario: Equity ETFs outperform high yield bond ETFs
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