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BofA Merrill Lynch reports week of ‘great rotation’

The past week has seen the widest global disparity between equity and bond flows ever, according to the latest BofA Merrill Lynch Global Research report.

Fallout from Trump’s victory in the US saw a “great rotation” level of discrepancy between the major asset classes with the largest equity inflows in two years ($28bn) and the biggest outflows in bonds in more than three years ($18bn), the report found.

Led by chief investment officer Michael Harnett, the Bank of America Merrill Lynch team suggested trading had reached a “secular inflection point”.

“If Brexit marked a 5,000 year low in global interest rates, Trump marked the moment investors started to position for bond bear market,” they said.

As anticipated, by Trump’s pro-business policies and expectations of an interest rate rise from the Fed next month, there were record inflows into sector-themed financials ETFs ($7.2bn), alongside heavy trading in materials, Treasury inflation-protected securities (TIPS), and bank loan funds.

Interestingly, precious metals registered their largest outflows since June 2013 at $2.7bn, while there was also a record $6.6bn outflow from emerging market debt funds.

According to Lipper fund flows data, American investors funnelled a record net sum of $27bn to US equity ETFs during the seven days after the election. 

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