Post by : Rohit Dhiman

Global investors moved significant amounts of money into cash-like investments during the week ended October 7, as a broad selloff in bond markets, concerns about government debt and persistent inflation fears encouraged a more cautious investment approach. According to data from LSEG Lipper, global money market funds recorded net inflows of $153.81 billion during the week. This was the largest weekly net purchase since May 6, highlighting a strong shift towards assets that investors often use to manage short-term liquidity and reduce exposure to market volatility. The movement came as government bond yields climbed in major economies, including France and the United States. Higher yields can reflect changing expectations about inflation, interest rates, government borrowing and the compensation investors demand for holding bonds.

French Bond Yields Rise Amid Fiscal and Political Concerns

France faced renewed pressure in its government bond market, with the yield on its 10-year government bonds reportedly reaching 4.994%, its highest level in 24 years. The increase came amid concerns about the country's public finances, including a budget deficit exceeding 5% of gross domestic product, according to the report. Investors were also weighing uncertainty surrounding a potentially divisive presidential election scheduled for next year. Government bonds are commonly used by investors to assess a country's borrowing conditions and the return demanded for lending to its government. When investors become more concerned about fiscal stability or political uncertainty, they may demand higher yields before purchasing or continuing to hold those bonds.

US Treasury Yields Climb as Oil Prices Renew Inflation Fears

The United States also experienced pressure in its government bond market. The 10-year US Treasury yield climbed to 5.3645% on Wednesday, reaching its highest level in approximately 24 and a half years, according to the report. Higher oil prices contributed to concerns that inflation could remain elevated for longer than previously expected. Energy costs can influence transport, manufacturing and household expenses, potentially affecting prices across the wider economy. When inflation is expected to remain high, investors may demand higher returns on fixed-income investments to compensate for the reduced purchasing power of future payments. Expectations about the Federal Reserve's interest-rate decisions can also influence Treasury yields. Higher Treasury yields can affect borrowing costs throughout the economy, including mortgage rates, corporate financing and other forms of credit. 

Read Also: Malaysia Scraps Entertainment Duty on Cinema Tickets and Theatre Shows

Global Equity Funds Record More Modest Inflows

While money market products attracted substantial investment, global equity funds recorded a much smaller net inflow of $560 million during the week. It was the smallest weekly inflow into these funds in three weeks, according to LSEG Lipper data. The overall figure concealed significant differences between regions. European equity funds attracted $6.19 billion, their largest weekly inflow in four weeks. Asian equity funds also received $6.16 billion in net investment. In contrast, US equity funds experienced net withdrawals of $5.11 billion. These regional differences suggest that investors were not moving uniformly out of stocks. Instead, fund flows showed that investment preferences varied across markets, with Europe and Asia attracting fresh capital while US-focused funds experienced withdrawals.

Technology, Utilities and Industrial Funds Attract Capital

Sector-specific equity funds also experienced different investment trends during the week. Technology funds received $5.37 billion in net inflows, making the sector the largest recipient among the categories highlighted in the report. Utilities funds attracted $1.10 billion, while industrial funds recorded inflows of $1.03 billion. Financial sector funds moved in the opposite direction, recording net withdrawals of $3.47 billion. These figures demonstrate that investors continued to make selective bets within equity markets rather than treating all industries in the same way. Technology companies may attract investment because of expectations about earnings growth and innovation, while utilities can appeal to investors seeking exposure to businesses that provide essential services.

Global Bond Funds Receive $26.03 Billion

Despite the selloff in government bond markets, global bond funds attracted $26.03 billion in net inflows during the week. This was their largest weekly inflow since July 8, according to the report. The combination of rising bond yields and fresh fund inflows may appear contradictory, but it can occur when investors see higher yields as an opportunity to earn greater income or expect market conditions to stabilise. Bond funds also cover a wide range of investment strategies, maturities, credit qualities and regions. Consequently, inflows into bond funds do not necessarily mean investors are buying the same securities that have come under the strongest selling pressure. Short-term bond funds attracted $9.36 billion, their largest weekly inflow in three months. Government bond funds received $4.65 billion, while loan participation funds recorded $1.89 billion in inflows.

Gold and Energy Funds Continue to Attract Investment

Commodity-focused investment funds also recorded inflows during the week. Funds investing in gold and other precious metals received $1.41 billion, marking their fourth consecutive week of net purchases. Energy funds attracted another $269 million. Gold is often used by some investors as a portfolio diversifier during periods of uncertainty, although its price can fluctuate substantially and it does not generate interest income. Demand for gold-related funds can be influenced by inflation expectations, currency movements, geopolitical risks and changes in real interest rates. Energy funds, meanwhile, can provide exposure to companies and assets linked to the energy sector. Their performance may be influenced by oil and gas prices, production decisions, geopolitical developments and global demand.

Emerging markets recorded mixed investment trends.

Emerging-market bond funds attracted $1.48 billion during the week, broadly reversing the previous week's net outflows of $1.86 billion. The recovery indicated renewed buying interest in emerging-market debt during the reporting period. However, these investments can be affected by currency fluctuations, government finances, local interest rates, political developments and changes in global risk appetite. Emerging-market equity funds continued to face pressure. They recorded net outflows of $752 million, marking a fifth consecutive week of withdrawals. The difference between bond and equity flows highlights the varied decisions investors were making across asset classes in developing economies. Some investors returned to emerging-market debt while continuing to reduce exposure to shares.

Why Money Market Funds Attract Investors During Bond Selloffs

Money market funds typically invest in short-term debt instruments and other eligible money market securities. They are commonly used by investors seeking liquidity and a place to hold cash while deciding on longer-term investment opportunities. Their appeal can increase when financial markets become volatile or when short-term interest rates offer comparatively attractive returns. Unlike longer-term bonds, many money market instruments have relatively short maturities, which can reduce their sensitivity to changes in market interest rates. However, money market funds are not identical to bank deposits. Depending on the fund and jurisdiction, they may carry credit, liquidity and other risks, and returns are not necessarily guaranteed. The week's $153.81 billion inflow suggests that investors placed considerable emphasis on short-term liquidity as bond yields rose and inflation concerns persisted.

#world news #Global News #Asia News #Global