Investors have returned to the world of debt in a cooling of the Trumpflation trade that pummelled bond markets and propelled equities to record highs after the US election.
The shift, which has included fresh inflows to municipal, Treasury and emerging market bond funds over the past week, dovetails with a near month-long rally in haven US Treasuries and fatigue in benchmark stock indices.
Municipal funds, which had suffered 10 consecutive weeks of redemptions, counted their first week of inflows in the seven days to January 11, adding $762m during the period, according to data from EPFR. More than $14.5bn had been drained from the asset class in the preceding eight weeks.
Emerging market bond funds saw their second straight week in which contributions surpassed $1bn, while separate data from Lipper showed the largest inflows into investment grade US corporate bond funds in nearly two years.
Overall, global bond funds took in $8.4bn in the past week, a 14-week high.
Cameron Brandt, the director of research for EPFR, characterised the investor positioning as a “return to reality . . . indicating a more realistic view of what Mr Trump might actually be able to accomplish”.
Stock indices, after rocketing higher after the election, have hovered in a range of roughly 1 per cent over the past month. Investors betting on lower taxes and a looser regulatory regime have been confronted by an acrimonious political environment that has cast a shadow over President-elect Donald Trump’s incoming administration.
“The Trump euphoria will fade . . . because he’s getting inaugurated on January 20 and investors are looking at the world being perfect on January 21,” said Bob Doll, chief equity strategist of Nuveen Asset Management.
US stock funds counted $251m of withdrawals in the past week, only the second time US equities sustained a weekly outflow since the election, according to the EPFR data. A week earlier, investors added $6.2bn to US equity funds.
The rally in Treasuries has bolstered emerging markets hit hard by the election and December Federal Reserve meeting, when policymakers signalled a faster pace of rate rises than the market expected.
The Trump euphoria will fade . . . because he’s getting inaugurated on January 20 and investors are looking at the world being perfect on January 21
Lower yields on US government debt have supported the appeal of emerging market securities, with stock funds devoted to the asset class recording their first inflows in a month. Russian stock funds have enjoyed their longest inflow streak since 2012.
Overall, emerging market stock funds added $476m in the week to January 11, reversing a majority of the previous week’s outflows.
Inflows to risky high-yield US corporate bond funds decelerated from the first week of the year, but remained in positive territory for the eighth straight week. Lipper data, which track US-based portfolios, showed $4bn of cash added to investment grade corporate bond funds.
The inpouring has helped absorb the record pace of corporate and bank debt issuance, with more than $94bn of the bonds sold in the US since the year began, according to Dealogic.
“It has been a nice opening salvo so far. There is a lot of demand for credit and you have had very heavy supply,” said Sabur Moini, a portfolio manager with Payden & Rygel.
“Demand is strong globally, not just from the big US insurance companies,” he added. “There is a strong bid for credit and . . . following the Treasury rate rise in November and December, even if spreads are a little tighter, you are getting higher yields.”