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Investors poured $220 billion into short-term U.S. government debt this year, concerning that Donald Trump’s economic and trade policies have caused competition for shelter assets and have caused stocks to fall.
According to EPFR data, between early January and March 14th, short-term net inflows into the financial fund reached around $21.7 billion, setting the largest quarterly flood stage for vehicles two years later. Long-term government bond funding flows have also been positive in previous quarters, but totalling much less than $2.6 billion.
A cascade of funds to government debt on short dates has deepened concerns that Trump’s aggressive trade agenda will slow the growth of the world’s biggest economy and cause higher inflation as investors seek shelter from selling on risky assets such as stocks and junk-valued corporate bonds.
“We are committed to providing a range of financial services and business opportunities,” said Bob Michele, global bond head at JPMorgan Asset Management. “And now you look at the US bond market and it could be the anchor of the storm.”
This week’s Bank of America survey found investors cut US stock allocations “the biggest ever” in March, and the spread of junk bonds – the gap between underrated companies and the US government rose sharply.
Mark Cabana, BOFA’s US fare strategy, said: “If you’re increasingly worried about risky assets and the potential for slowing the economy, or concerns about growth that are certainly brewed, it probably makes sense to think about freeing up high-risk alternatives.”
Analysts also said attractive yields have driven the appeal of short-term debt. For example, a one-month financial year provides a yield of 4.3%, while a two-year note provides 4%.
Investors and strategists also said that if the US economy shows further signs of a slowdown, if the Federal Reserve cuts interest rates, Treasury yields will continue to lawsuits, leading to price increases for bondholders.
The bet on short-term US debt will be tested later Wednesday, when the Fed issues its latest economic and interest rate forecasts. The market is hoping to cut two or three central bank policy rates this year, and a deviation from that outlook could ripple over the bond market.
Analysts noted that uncertainty about the US economy’s trajectory is also a factor that drives investors into shorter-term debt.
Michele of JPMorgan said “pure condemnation” and “money tends to go to instruments like cash and cash when it appears that the stock market will undergo corrections.”
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“Indeed, money market fund assets have risen,” he adds, referring to vehicles holding ultra-short-term Treasury bills and cash equivalents, but “we have short-term bond fund assets.”
“The only reason I want to go out on the long edge of the (Treasury) curve is that I believe the US economy is slowing down and I can get big sums on the long edge,” added Andy Brenner, head of international bonds at Natalliance Securities.
“It makes sense to broaden the curve to worry about growth risks and think that rates will fall.”
But he added, “If you lack that belief and you just want some safety, front-end funds are liquid and safe, and perhaps the easiest to get in and out.”
