European bonds and equities saw coordinated outflows for the first time since the 2013 “taper tantrum”, the latest data on capital flows show.
In 2013, when then Federal Reserve chairman Ben Bernanke announced that the Fed will begin to taper its quantitative easing policy, money flew from assets perceived as riskier than U.S. Treasuries.
European bonds and stocks suffered then, as did emerging markets.
This time, there is uncertainty about the timing of the first interest rate rise by the Fed. Besides, investors have been spooked by the negative yields on some government bonds in the eurozone after the European Central Bank (ECB) started buying government bonds.
In Europe, even highly rated bonds saw outflows, their first in 73 weeks, although a small amount of just $152 million, according to Bank of America Merrill Lynch.
High-yield European debt funds saw their second week of outflows in a row, with $431 million getting out in the week that ended on May 13. European equities also saw outflows in the week, of $1.2 billion, for the second straight week.
The analysts at Bank of America Merrill Lynch point out that “this time, central banks haven’t caused the current rout in government bonds.”
Looking back at the taper tantrum, high-grade bond funds saw 18 weeks of outflows in the last seven months of 2013. High-yield debt, where spreads are higher, saw only seven weeks of outflows by comparison.
“With credit spreads — especially in periphery — priced, in our opinion, to perfection, for credit inflows to resume again rates markets need to stabilise first,” the analysts said.
European government bond funds saw their biggest outflow in 28 weeks; 10-year Bund yields were up 65 basis points from their lows.
European money market funds also saw outflows for the third straight week, the tenth week of outflows so far this year.
In other areas, emerging market debt funds saw their eighth straight week of inflows, but these have diminished to their lowest level in seven weeks — $100 million.
U.S. stocks saw their first inflow after eight weeks of outflows, although they received just a modest $600 million.
Japanese equities saw the largest inflows since October, marking this as the 12th straight week of inflows, with $4.3 billion going in.
Emerging market equities, which saw outflows in 10 out of the last 11 weeks, saw another $2.6 billion leaving.