LONDON Oct 7 Investors shovelled $11.4 billion
into bond funds in the past week indicating a persistent "lust
for yield", Bank of America Merrill Lynch (BAML) said on Friday,
with rumours of a potential European Central Bank tapering not
yet impacting flows.
Bond markets were spooked by a media report on Tuesday that
the European Central Bank (ECB) will probably wind down its
80-billion-euro monthly bond purchases gradually before ending
its quantitative easing programme.
The ECB tweeted a denial, but eurozone bond yields still
rose to two-week highs in early Wednesday trade.
Fund flows do not yet indicate that investors are bailing
out of fixed income, however, with bond funds attracting their
biggest inflows in 13 weeks in the week to Wednesday, the survey
found. At the same time, investors pulled $6.4 billion from
Since Britain's June 23 shock vote in favour of leaving the
European Union, bond funds have enjoyed $102 billion of inflows,
compared with $25 billion of outflows from equity funds, BAML
"This is largely down to the ongoing 'lust for yield' in
fixed income," the bank said, adding in the last week investment
grade bond funds had attracted $4.9 billion, high yield bond
funds $2.5 billion and emerging market debt funds $2 billion.
However, BAML noted that G20 politicians were implicitly
admitting they needed to spend more money on voters and less
money on bonds in the next 12 months, citing British Prime
Minister Theresa May's comments about the side effects of the
Bank of England's low interest rates and quantitative easing
BAML argued that a strong U.S. non-farm payrolls number of
greater than 225,000 could also extend the bond sell-off. The
bank noted that Fed rate hike expectations for December were
already at 64 percent, compared with less than 50 percent last
The bank also highlighted an outflow of $7.2 billion from
U.S. equity funds over the week, while European equity funds
lost $1.6 billion in a record 35th straight week of outflows.
Emerging market equity funds remained in favour, attracting
$1 billion, and Japanese equity funds attracted $800 million.
BAML also noted outflows from "bond proxy" stocks such as
utilities, telecoms and real estate investment trusts, with
investors rotating into tech stocks, financials and materials
(Editing by Andrew Heavens)