In the aftermath of the Donald Trump presidential election victory this past week, investors increased their bets on inflation, pushing the ten-year Treasury yield to its highest closing value in ten months, jumping 19 basis points on Wednesday to 2.07%. During his victory speech on Wednesday morning, Trump talked about boosting spending on infrastructure, cutting corporate and individual taxes, and repatriating overseas cash in an attempt to promote growth in the U.S. economy, all of which some pundits believe could be inflationary.
As might be expected given the increase in Treasury yields at all maturities across the yield curve, for the fund-flows week ended November 9, 2016, investors were net sellers of taxable fixed income funds (including exchange-traded funds [ETFs]), but to the tune of just $0.7 billion. Interestingly, ETF investors were net purchasers of fixed income funds, injecting $2.7 billion during the week, while their mutual fund counterparts were net redeemers, withdrawing a net $3.4 billion. However, in anticipation of increased inflation investors injected $1.0 billion into Inflation-Protected Bond Funds (aka Treasury inflation-protected securities [TIPS]), for the second largest net inflows for the classification since Thomson Reuters Lipper began collecting weekly flows on the group in 2002. One might expect investors would continue to pad the coffers of the floating-rate classification, Loan Participation Funds, as well. However, investors were net redeemers for the week, withdrawing a net $45 million, for the first weekly net redemption for the classification in 15 weeks. While investors were still pricing in a 76.3% probability of a 25-basis-point rate hike by the Federal Reserve Board in December, according to the CCME Group’s FedWatch tool, some pundits think the Fed may be more cautious with its December rate-hike decision because of the uncertainty surrounding the Republican sweep of the presidency, the House, and the Senate.
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