ITC – Month-End Flow Summary
Bloomberg-Barclay Index Extensions US Tsys 0.06Y, MBS 0.07Y, EGBs 0.10Y, Gilts 0.36Y
Below Average US extension but gains from shifts from equities
There are fairly robust month-end duration extensions in UK markets according to Bloomberg-Barclays. Other month end extensions are fairly average-looking affairs for July.
These are duration extensions within the bond-space but there could be added possible bond inflows from balanced funds, which are particularly generous in the US this July. There are a few extra trading days remaining but the total return for the S&P500 is 3.9% and compares to almost no return in the USD aggregate bond index.
For Europe, the asset rebalancing is still decent and towards bonds. Given market liquidity in Europe in late July and early August, flows could be expected to have a greater influence.
Rebalancing versus equities
So far in July, US equities are showing a 3.9% total return on the month (S&P 500) and the US Bloomberg-Barclays Aggregate index is -0.05%, suggesting that there will be a switch from equities to bonds. Assuming $4trn of balanced funds and 60/40 target split, this would create a $38bn shift from equities to bonds and sits at the 82nd percentile in terms of strength of switches to bonds based upon 10 years of month ends.
For European markets, the Bloomberg 500 has shown a +1.98% total return in July and compares to a -0.01% decline in the Bloomberg-Barclays Euro Aggregate index. With an assumption of €4trn of balanced funds, this implies a €19bn shift from equities to bonds, which sits at the 67th percentile in terms of strength of movements to bonds.