A staggering amount of money is flowing into credit as investors switch gears amid changing market conditions.
Despite headwinds in Europe, investors now view much of the world’s debt as relatively safe, prompting them to put money into securities such U.S. Treasuries and emerging market bonds, according to data compiled by Société Générale. That’s quite the reversal from the trend we saw at this time last year, when everyone was exiting credit to make a play in equity markets.
At the same time, investors are now fleeing commodities at a rapid pace. Looking back one year, six straight months of net inflows into commodities has been followed by drastic outflows in five of the last six months.
Since January, bonds have seen a net inflow of $34-billion (U.S.), with U.S. debt accounting for $30.7-billion of that total. Europe, on the other hand, has seen a net outflow of $21.4 billion. (Those figures may not seem that large on a global stage, but keep in mind that they are the net numbers, so all the money taken out of these securities is subtracted from the money being piled in.)
But even though credit is the hot item, only certain forms of it are desired these days. Money market funds in particular have seen huge outflows because investors now favour longer-term, and riskier, debt. In fact, south of the border high-yield bonds are starting to make a comeback as investors get more comfortable with the idea of a stable, but slow, U.S. economic recovery.