Global bond funds gain solid inflows amid rate-cut expectations, Middle East tensions

(Reuters) - Global bond funds attracted the biggest weekly inflow in six weeks in the seven days to Aug. 28, buoyed by heightened purchases of government bonds amid anticipation of a September Fed rate cut and ongoing Middle East tensions.

According to LSEG data, investors acquired a net 17.69 billion worth of global bond funds during the week, marking their largest weekly net purchase since July 17.

The two-year U.S. Treasury yield, which typically reflects interest-rate expectations, dropped 15.3 basis points last week after Federal Reserve Chair Jerome Powell signaled the imminent start of rate cuts, noting that further cooling in the job market would be unwelcome.

U.S. bond funds gained a significant $9.58 billion worth of inflows, the largest amount in six weeks. Additionally, European and Asian funds witnessed $6.92 billion and $681 million worth of net purchases.

In specific segments, investors snapped up government bond funds of a net $5.42 billion, registering their largest weekly net purchase since Oct. 2023. They pumped up $4.99 billion into dollar-denominated short-term government bond funds, the highest since mid-March 2023.

High-yield bond funds also garnered a hefty $2.73 billion, the second weekly inflow in a row.

Investors also sought about $8.18 billion worth of global money market funds, extending net purchases into a fourth successive week.

Global equity funds, meanwhile, drew their third weekly inflow in a row, valued at $2.31 billion, following about $16.28 billion worth of net purchases in the prior week.

The financial sector witnessed a notable $653 million worth of inflows, the biggest in five weeks. The real-estate sector also gained 308 million, posting a third weekly net purchase.

Meanwhile, gold and other precious metal funds remained popular for a third successive week as investors racked up funds worth a net $342 million. They also acquired $40 million worth of energy funds in a second successive week of net purchases.

Data covering 29,597 emerging market funds showed equity funds faced a 12th weekly outflow, booked at a net $419 million. In contrast, investors funnelled $1.04 billion into bond funds, the biggest amount in seven weeks.

(Reporting by Gaurav Dogra and Patturaja Murugaboopathy in Bengaluru; Editing by Vijay Kishore)