BAML: Bond rush triggers biggest Treasury spree since Brexit


Analysis of trading data by the Bank of America Merrill Lynch revealed that the past week had seen the highest inflow into U.S. government debt funds since 2016’s Brexit vote. It is also the 25th straight week of moves into bonds globally.

Amid indications that inflation may not prove strong enough to allow major economies to move too far away from record-low interest rates, investors have poured money into almost everything including emerging markets, gold funds, and equities.

This year, the amount of stimulus provided by central banks including Bank of Japan and the ECB has now reached a total of $2 trillion also.

Despite a minor outflow from U.S. stocks, $6.6 billion in total was moved into bond funds and $3.7 billion into equities over the past week. Also, $1.3 billion went into gold funds too, which was the highest in over seven months.

Michael Hartnett, BAML’s chief investment strategist, said that there is “no disconnect between stocks and bonds.” The “best explanation for low (bond) yields and high stocks is $1.96 trillion of central bank purchases of financial assets in 2017 alone.”

With U.S. interest rate hike expectations and inflation and now drifting back again, there were small outflows from bank loan-backed and inflation-linked bonds, as well as banking stocks.

Meanwhile, emerging markets assets, which manage to do well when investor confidence is high, continued their hot streak. Recent inflows of $1.7 billion to EM debt funds made it 32 gains in the past 33 weeks.

Developing stocks funds also chalked up inflows. The largest as a percentage of funds assets under management were into Russia, which is making noises about decreasing its interest rate again.

Analysts from BAML have regularly warned in recent months that equity markets are heading for a recession. Although this week, they announced that investors used brief sell offs when North Korea tensions have spiked, to buy into stocks.

They said that in 6 weeks, Tuesday saw highest daily inflow to equities – $5.1 billion and mostly into Japanese and U.S shares.