BofA Follow The Flow Seeking shelter 2026 10 09

Follow The Flow Seeking shelter

Higher sovereign yields support rotation into gov’t debt 09 October 2026

Flows follow yields: 2026 is shaping up to be the year when inflows gravitate back Credit Strategy toward government bond funds. In a stark reversal of the trends seen in 2024 and 2025, Europe investors are favouring strong inflows into so-called "risk-free" assets rather than credit. Ioannis Angelakis Rising geopolitical uncertainty, higher sovereign yields and tight credit spreads have Credit Derivatives Strategist MLI (UK) been key drivers of this rotation away from riskier assets and into government debt and money market funds. Barnaby Martin Exhibit 1: Will take some time till credit shines again Credit Strategist MLI (UK) A higher level of “risk-free” yields is favouring gov’t debt and money-market funds over credit Inflow into Gov't/MM vs short-term IG funds (LHS) 4.5 45 Mohit Agarwalla 2yr Bund yield (24wks lead) Credit Strategist 40 3.5 MLI (UK) 35 BofA estimates

Table 1:Weekly and YTD European 0.5 10 retail flows 5 -0.5 Weekly fund flows data across assets 0 1 -5 -1.5 This Wk YTD '20 '21 '22 '23 '24 '25 '26 '27 Sector Week (%) YTD (%) HY ($1,067) (0.3%) ($1,694) (0.5%) Source: EPFR Global. HY (ETFs) $4 0.0% $2,852 6.3% BofA GLOBAL RESEARCH IG ($2,125) (0.1%) $35,998 1.7%

Over the past week… in euros in sterling ($1,507) ($200) (0.1%) (0.1%) $12,444 $58 1.1% (0.0%) Overall, high-grade funds suffered from another outflow the last week; the furth week in usd ($1,029) (0.3%) $9,278 2.7% of outflows over the past five. Maturity flows diverged, with mid- and long-term funds IG (ETFs) $1,186 0.5% $22,149 8.7% recording inflows while short-term funds suffered from outflows. This was the third Loan ($69) (0.3%) $3,378 19.3% Govies $4,586 0.5% $59,707 7.1% week in a row when short-term funds suffered from outflows, while long-end benefited Fixed Income $1,947 0.1% $124,430 3.3% (see report: Europe’s new yield map). MM $66,899 2.7% $130,979 5.6% Equities $232 0.0% ($14,725) (0.7%) High yield funds saw their fifth consecutive weekly outflow, and their largest since last Equities (ETFs) $493 0.1% $35,021 5.6% April. Across European-domiciled funds, Globally-, US- and European-focused funds all Commodities $657 0.2% $21,018 7.2% suffered from outflows last week. HY ETFs however managed to record marginal inflows Global EM debt $2,039 0.3% $53,647 7.4% last week. Source: EPFR Global. In $mn; week ending 7th September. Data refers to European domiciled funds, Inflows into government bond funds continued for a second straight week. Note last except for EM debt funds that refer to global. Some IG funds can also allocate to government bonds. Note week’s inflow was the largest since April 2025, showcasing the need for “safer” assets that IG funds are also split into other currencies away with yield. Money market funds reversed outflows from a week ago. Global EM debt from Euro, USD and GBP. funds have now recorded inflows for ten weeks in a row. In aggregate, flows for fixed BofA GLOBAL RESEARCH income funds reversed course this week, recording inflows of c.$2bn. Equity funds continued to record inflows, for a second consecutive week; equity ETFs logged their tenth consecutive week of inflows.

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Flow chartbook Weekly Flow Distributions per asset class Exhibit 2: Distribution of IG fund flows ($mn) over the past week Exhibit 3: Distribution of HY fund flows ($mn) over the past week The flow trend is dispersed across funds The flow trend is dispersed across funds

-500 > x -50 < x < 0 -500 < x < -250 -250 < x < -100 -100 < x < -50 x > 500 50 < x < 100 100 < x < 250 250 < x < 500 0 < x < 50 -100 > x -10 < x < 0 -100 < x < -50 -50 < x < -25 -25 < x < -10 x > 100 0 < x < 10 10 < x < 25 25 < x < 50 50 < x < 100

Source: EPFR Global. The height of each column represents the number…