BOND FUND CARNAGE: Investors Stage An Exodus From Emerging Markets As Equities Suffer Collateral Damage

It was another insane week for asset managers.

After huge redemptions from bond funds last week – during which investors pulled the most money in a single week from Treasury funds ever – the onslaught of outflows continues.

In the week ended June 12, bond funds as a whole saw $14.5 billion in redemptions, the second-largest weekly outflow from the asset class ever – for the second straight week in a row.

BofA Merrill Lynch Chief Investment Strategist Michael Hartnett calls it "bond fund carnage," writing in a note to clients that a "record $27 billion in 2 weeks shows complete washout in fixed income."

Hartnett also flags an "exodus from [emerging markets] assets" – emerging market debt and equity funds saw $9 billion in redemptions, the third largest weekly outflow on record – and calls the $9 billion of redemptions across global equity funds this week "collateral damage ... on big 'risk-off' trade."

Flows by Asset Class

Bonds: $14.5bn outflows (second largest on record for second straight week)

Equities: $8.5bn outflows (largest in 9 months) ($4.6bn via ETFs)

Commodities: $0.4bn outflows (18 straight weeks = longest on record)

Flows by Fixed Income Sector

$6.5 outflows from HY bond funds (2nd largest ever)

$2.5 outflows from EM debt (2nd largest ever)

$1.5bn outflows from govt/tsy funds

$1.7bn outflows from munis (largest in 2013)

51 straight weeks into floating-rate debt ($1.5bn)

Flows by Equity Region

$6.4bn outflows from EM equity funds (largest since Aug'11)

Our EM Flow Trading Rule will give a contrarian "buy" signal if we see another $8-10bn outflows next week or $11-12bn over nxt 2 weeks. Current 4w outflows = 1.9% of AUM ("buy" threshold is 3.0%)

Record outflows from real estate funds ($2.0bn) (but outflows dominated by IFGL and IYR ETF's)

Small inflows to Europe ($0.2bn) and Japan ($0.3bn)

The chart below shows that there may be scope for further outflows from emerging market assets in the coming weeks, which would trigger the first contrarian "buy" signal in BofA's emerging markets flow trading model in over two years.

BofA Merrill Lynch Global Investment Strategy, EPFR Global

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