Weekly Fund Flows

Inflows into credit continued for week ending Wednesday - $IG at a moderated pace as we had flagged & similar slowdown for €IG - not much concern/impact given its been matched by a supply slow down this week. We are heading into a seasonally slower supply month (vs. Jan) - we don't see strong seasonality for spreads in Feb & question the relevance regardless given we are waiting at the turning point of a historic rates cycle. It'll be interesting to see the impact of falling yields on spreads if yield buying has been the support - forward swaps are implying even long-end rates (10-30y) will fall ~5-10bps over the next 6-months & in the case of shorter maturity €IG a implied ~15bp fall. Last year we saw rates repricing lower as tailwind for spreads & this year we've seen the reverse - granted it has been matched with better activity & labour market data & earnings season that's so far kept up with strong '24 growth expectations (S&P500 EPS year end fcst seem unch. & Stoxx600 higher since earnings began ~2 weeks ago).

£IG spreads posted another strong session yesterday (-2.4bps) & decompressed (-0.7bps) in a reversal of YTD themes - yield divergences becoming more stark for investors after yesterday's rates rally in € - 20+bps of outperformance from bunds vs. Gilts YTD. Reported inflows still don't show any sign of a pick up in £IG though - ETF space isn't as large & we don't see any reversal more recently either.

Outside of credit, US equities reversed to strong inflows & EM equities (driven by China) received a strong boost in its inflows - the tailwind likely Wednesday's surprise reserve requirement ratio cut for banks (cash reserve req's will be lowered -0.5% on Feb 5 giving a reported $139b liquidity boost) - it also came alongside broader stimulus measures including support for Commercial property developers. Bloomberg's $ index tracking Chinese credit issuers has rallied 7bps YTD, but has lagged $/€/£IG since the late Oct rally began. Our commod's team also flagged the measures as a tailwind to Oil's ~5% rise this week.