Global Equity Funds See 94M USD Outflow Amid U.S. Yield Concerns

Global equity funds experienced their largest weekly outflow in six weeks, driven by concerns over rising U.S. Treasury yields and Moody's downgrade of the U.S. sovereign credit rating. This shift in market sentiment led to a significant reversal from the previous week's inflow of over 200 million dollars, with a net outflow of 94 million dollars.

U.S. equity funds were the hardest hit, with redemptions totaling 110 million dollars. Asian equity funds followed with an outflow of 46 million dollars. In contrast, European equity funds saw an inflow of 54 million dollars. This shift in investor sentiment comes as concerns over U.S. fiscal policy and the potential impact of tax legislation have grown.

John Higgins, Chief Market Economist at Capital Economics, noted that investors may be more cautious about pouring into the U.S. stock market following the market volatility in April, especially given the concerns over fiscal policy. These worries are compounded by the recent surge in long-term Treasury yields and the weak demand for 20-year Treasury auctions following Moody's downgrade.

The passage of a tax and spending bill by the U.S. House of Representatives further exacerbated debt concerns, pushing the 30-year Treasury yield to a 19-month high on Thursday, just a few basis points away from its highest level since 2007.

In contrast to the equity market, global bond funds attracted 216 million dollars in inflows, indicating that investors find current yield levels attractive. U.S. bond funds saw inflows of 76 million dollars, European bond funds attracted 110 million dollars, and Asian bond funds had a net inflow of 18 million dollars. By category, U.S. government bond funds attracted 28 million dollars, U.S. high-yield bond funds saw inflows of 12 million dollars, and European corporate bond funds attracted 15 million dollars.

Money market funds also rebounded after outflows of 340 million dollars the previous week, attracting 181 million dollars. However, gold and precious metals commodity funds experienced their third consecutive week of outflows, with 17 million dollars in redemptions.

Emerging market (EM) bond funds continued their inflow trend, attracting 4.03 million dollars for the fourth consecutive week. In contrast, emerging market equity funds saw a slight outflow. Despite this, emerging market equity funds have attracted 106 million dollars year-to-date, a 43% increase from the same period last year.

Allspring Global Investments' Portfolio Manager Alison Shimada attributed the renewed interest in emerging markets to concerns over the end of U.S. exceptionalism and a lack of clear expectations for the U.S.'s future direction. This sentiment has led investors to seek opportunities in other regions, contributing to the outflow from U.S. and Asian equity funds and the inflow into European equity funds.