(Fixes paragraph 3, adding dropped word)
By Jemima Kelly
LONDON, Sept 9 Investors poured money into
emerging market bonds in the latest week - taking inflows over
the past 10 weeks to the most ever - while pulling cash out of
lower-yielding developed market government debt, Bank of America
Merrill Lynch said on Friday.
Emerging market stocks also continued to be in vogue in the
week ending Sept. 7, attracting inflows for the 10th straight
week, BAML said.
Investor appetite for riskier assets showed no sign of
diminishing, gravitating to higher rates of return as
expectations of a U.S. interest rate hike this year remained
relatively low and monetary policy elsewhere remained loose.
Markets are pricing in a less than a 1-in-5 chance that the
U.S. Federal Reserve will hike rates this month, and little over
a 50 percent chance of a move by the end of the year, according
to CME FedWatch.
Investors poured $6.8 billion into corporate credit over the
week, with investment-grade bond funds drawing inflows for 26 of
the past 27 weeks and high-yield bond funds seeing inflows for
nine of the past 10 weeks.
"Long live the credit boom," BAML said in a note to clients.
"A 'bond shock' - a fast, unexpected rise in yields - remains
the key autumn risk for this crowded asset class."
Low-risk developed market government bonds fund, such as
U.S. Treasuries and German Bunds, saw $1.9 billion of outflows,
the most in six months.
So-called bond proxies - equities that have safe,
predictable returns - were also avoided, BAML said in a note
titled "Bond proxies are passé". Investment in utilites fell for
the ninth straight month, the longest streak of outflows in six
Commodities attracted net inflows - $1.1 billion - for the
first time in four weeks, BAML said.
Money market funds continued to lose money, with outlows of
$12.8 billion over the week, taking the total year-to-date
outflows to just over $84 billion.
Equity funds drew $0.2 billion, having attracted inflows for
four of the past five weeks but having seen almost $130 billion
of outflows so far this year.
(Reporting by Jemima Kelly; Editing by Jamie McGeever/Jeremy