Global equity funds see drop in demand on rising US Treasury yields

Demand for global equity funds declined sharply in the week through Jan. 15, as US Treasury yields rose and expectations for the Federal Reserve’s interest rate cuts fell following a robust jobs report.

Global equity funds witnessed just USD 37.79 million worth of net purchases during the week, the smallest weekly buying since Dec. 18, 2024, as per LSEG Lipper data.

Last week, investors pondered possibility that the Fed may have finished cutting rates as data from the Labor Department showed US job growth accelerated in December, while the unemployment rate fell to 4.1% from 4.2% in November.

The benchmark 10-year yield climbed to 4.805% following the report, its highest level since November 2023.

However, the core US inflation reading for December came in below expectations on Wednesday, reigniting hopes for further cuts.

During the week ended Jan. 15 , investors withdrew a net USD 8.23 billion from US equity funds, the largest outflow since December 18, 2024, while investing USD 5.07 billion and USD 1.62 billion in Asian and European funds, respectively.

Sectoral equity funds saw USD 447 million in inflows, driven by a USD 1.08 billion investment into the financial sector.

Meanwhile, global bond funds attracted USD 8.88 billion, a sharp decline from the previous week’s USD 19.67 billion.

Short-term global bond funds received USD 5.02 billion and loan participation funds drew USD 1.39 billion, but government bond funds only saw USD 137 million in inflows, the lowest in three weeks.

Money market funds faced USD 94.13 billion in net sales, a reversal from the prior week’s USD 158.68 billion in purchases.

Precious metal funds ended a two-week selling streak with USD 327.55 million in purchases, while energy funds saw outflows for the sixth week, losing USD 54 million.

Emerging market data for 29,634 funds showed equities witnessed USD 4.06 billion worth of divestment, the largest weekly outflow in seven weeks. Bond funds, however, garnered a net USD 798 million worth of net purchases.

(Reporting by Gaurav Dogra and Patturaja Murugaboopathy in Bengaluru; Editing by Varun H K)