Fund flows flirting with contrarian buy signal, BofA says

Flows into and out of the different asset classes over the latest week were flirting with a possible 'contrarian' buy signal in global equities, Bank of America-Merrill Lynch strategists said.

The investment bank´s latest weekly flow data was "unambiguously" 'risk-off', strategists Michael Hartnett and Brian Leung said, with $9.2bn bolting out the door from equities just as $2.6bn moved into bonds and $12.2bn into money-market instruments, the traditional spot for wary investors to park their funds in times of uncertainty.

Hence, over the last four weeks redemptions (outflows) from equity and high-yield funds were left running at a pace of 0.9% of assets under management, just shy of the 1.0% required for BofA´s global-flow-trading-rule to give off a 'buy' signal, he explained.

In terms of the 'big picture', munis had seen 36 straight weeks of inflows, European stocks 16 straight weeks of outflows and investment grade bonds 12 consecutive weeks of inflows.

On a related note, Steven Major, Managing Director for Fixed Income Research at HSBC, on Friday morning told Bloomberg TV that US two-year Treasuries at a yield of about 0.90% were not particularly rich.

In his opinion, if the US Federal Reserve hiked interest rates once or twice in 2016 and then stopped the yield on sich debt would fall back towards around 0.60%. That, in turn, might steepen the interest rate curve, Major said.