With inflation fears and interest rate hikes on their minds, fund investors padded the coffers of loan participation funds and inflation-protected bond funds for the fund-flows week ended March 14, Lipper data shows.
Despite concerns that new US tariffs could ignite a trade war and possibly stall global and US economic growth, investors cheered a stronger-than-expected February non-farm payrolls report and cautiously pushed up select market indices ahead of next week’s Federal Open Market Committee meeting.
Investors will be keeping a keen eye on the FOMC meeting scheduled for March 20-21. Most investors expect the Fed to raise its key lending rate by 25 basis points to help keep inflation at bay. Investors put the likelihood of such a bump at 94%, according to the CME FedWatch Tool.
Of particular interest will be the press conference following FOMC, when new Federal Reserve Chair Jerome Powell will provide some clarity on how he will handle his written communications and press conferences going forward, along with his outlooks for inflation and the economy.
On Friday, March 9, the markets got a shot in the arm that pushed the Nasdaq Composite Index to a record close. The Bureau of Labor Statistics announced that the US economy added 313,000 new jobs in February, the largest monthly gain since mid-2016. The results easily beat analyst expectations of 222,000. Meanwhile, hourly wages grew only 0.1% easing fears of growing inflation.
While inflationary concerns ebbed on news, the CPI rose only 0.2% for February. In line with economists’ expectations, the PPI showed wholesale inflation rose 0.2% in February outpacing analyst expectations of 0.1% but still well under January’s 0.4% advance.
Year to date, fund investors continued to inject net new money into taxable bond funds (+$41.1bn), including conventional mutual funds and ETFs. The lion’s share went to corporate investment-grade debt funds (+$35.5bn) and government-Treasury funds (+$11.6bn). Meanwhile, high-yield funds witnessed the largest net outflows (-$17.5bn) as investors took some risk off the table.
However, with investors becoming more anxious about inflation and rising interest rates, Lipper’s Inflation Protected Bond Funds classification (ex-ETFs) witnessed its fifteenth straight week of net inflows (+$125m this past week and +$2.6bn as of March 14) as investors evaluated the non-farm payroll numbers.
Loan Participation Funds, also known as bank loan funds, witnessed their second week of net inflows, attracting some $430m this past flows week and $2.5bn as of March 14. Both of these classifications can help immunize investors’ bond portfolios against the negative impacts of rising inflation and escalating interest rates.