Global debt flows: Weaker dollar not yet impacting core inflows

Six things learnt from latest flows data

1)    Emerging markets are in a better shape than they were a couple of months back, but even given return inflows, it has not quite made a convincing escape velocity from the Covid-19 driven crisis. That said, inflows to hard currency remain a positive.

2)    Local currency funds continue to struggle to attract material inflows. The bulk of the performance and inflows have been in hard currency emerging markets. Ahead, we high beta local currency FX as routes to outperformance as the dollar slips.

3)    There has been some re-rating of prospects in high yield. Total returns are still running in the red year-to-date though, especially for EUR high yield. But, inflows have more than matched prior Covid-driven outflows.

4)    Core yields remain beaten down. The bulk of this reflects a combination of expectations and central bank buying, but also investor inflows. The dominant flow in the past month has been long end inflows.

5)    The dominant theme in corporates has been ongoing inflows. Elevated primary issuance in recent months remains a factor here, as inflows are registered when issuance exceeds redemptions - which it currently does; comfortably.

6)    We also note return inflows to money market funds, following outflows in previous weeks – mostly centred on pre and post the US 15 July tax deadline.