Global Debt Flows: Eye-Watering Outflows, And Just One Big Buyer

No surprise that the global shutdown has had a striking impact on mutual fund flows in the past month. Like the 12% increase in front end government holdings, and the 6% reduction in investment grade corporate holdings. Add to that a 10% reduction in emerging market assets under management, and a 9% reduction in high yield. Central banks are the only buyers.

Executive summary

Five things learnt from latest flows data:

1.  Outflows from emerging markets have been severe. In the past four weeks there has been a 10% reduction in assets under management in emerging markets among mutual funds. That likely eased off through this week, but on latest data through to Wednesday, March 25, of the week, the outflows were running at 4%.
2.  High yield assets under management at mutual funds have fallen by some 9% in the past four weeks; a significant outflow. USD high yield is broadly in line with that, but the outflows have been even more dramatic in West Europe currencies where the outflows have been in excess of 12%.
3.  Developed market government bonds have seen an inflow of almost 2.5% of assets under management in the past month. The bulk of the inflows have been into the front end, with assets under management there up over 12%. There have, in fact, been outflows in longer maturities, but here the flow is from mutual funds to the Federal Reserve, as it really ramped up its QE program.
4.  In corporates, the key flow has seen liquidation in shorter maturities. The implied flow has been out of short-dated corporates, and into short dated governments. There have also been large outflows from belly maturity funds, but inflows to long maturity funds. Overall though, it has been a story of outflows for investment-grade corporates, with assets under management down by almost 6% in a month.
5.  We also note outflows from inflation linked funds, as markets discount the shut-down process as being deflationary. Such funds have seen outflows in the region of 5% of assets under management in the past month.