Global debt flows: Sweet spot comfort for risk assets

Six things learnt from latest flows data

Latest flows evidence points to a duration reduction process in government space. Flows into front end governments and belly plus long end corporates have been thematic in the past fortnight.

Global inflation linked funds continue to struggle for inflows, and indeed European inflation funds have seen more outflows. This is reflected in a very benign market discount for inflation.

The geographic focus is on increased allocation to the US and reduced allocation to the Eurozone as a theme. Beyond that we note inflows to the likes of Singapore & Switzerland versus outflows from the UK & Japan.

Inflows to hard currency emerging markets remain thematic. Outflows from local currency funds remain in play too, but local currency performance has been catching up in the past 6 weeks, despite the (moderate) outflows.

We note decent inflows to Brazil, Mexico, Russia & S Africa (contained inflation dynamics). Lower allocation has been in play for the likes of China, Hong Kong, Turkey, Poland & Colombia (dominated by idiosyncratic issues).

High yield has managed to sustain a decent inflow pace in more recent months. The inflow process lately suggests minimal angst as we enter a slowdown episode that typically would see some elevation in default risk.