Follow The Flow Reaching for higher yields Aug 21

Follow The Flow Reaching for higher yields

Flows continue uninterrupted into credit and govt funds 21 August 2026

5yr Bund yields are close to 3%, levels not seen for 18 years and not seen since the Credit Strategy Global Financial Crisis. At the same time, rates volatility hovers around the mid-60s, Europe comfortably below levels that would indicate likely outflows from credit funds (above Ioannis Angelakis 90-100pts for SMOVEU3M). We see this backdrop as particularly beneficial for fixed Credit Derivatives Strategist MLI (UK) income funds and credit markets. However, we prefer owning "risk-free" assets, such as government bond funds, over credit. Note that government bond funds have seen inflows that are 3x stronger than those into IG funds so far this year (6% of AUM vs. Barnaby Martin Credit Strategist 1.9% of AUM YTD, respectively). MLI (UK) Over the past week… Mohit Agarwalla High grade funds recorded their fourth consecutive week of inflows over the past week, Credit Strategist suffering only one week of outflows over the past 17 weeks. Mid-term IG funds led the MLI (UK) way and have now seen 19 weeks of inflows in a row. Short term funds also recorded inflows over the past week, while long-term funds suffered from outflows. IG ETFs registered inflows this week extending a twenty-week streak of inflows. High yield funds recorded their fifth consecutive week of inflows. HY funds have suffered only two weeks of outflows over the past 19. For European-domiciled HY funds, Table 1:Weekly and YTD European the Euro-focussed ones saw materially stronger inflows than peers last week. While retail flows Global-focussed and US-focussed HY funds also attracted inflows, they were lighter vs Weekly fund flows data across assets those into Euro-focused funds. Note that Euro-focussed funds have seen ten 1 consecutive weeks of inflows. HY ETFs saw inflows this week marking three consecutive This Wk YTD weeks of inflows. Sector Week (%) YTD (%) HY $311 0.1% $339 0.1% Exhibit 1: IG vs Government bond funds cumulative flows HY (ETFs) $112 0.2% $3,383 7.4% % of AUM flows IG $1,173 0.1% $41,765 1.9% in euros $558 0.0% $16,739 1.5% 7% in sterling ($252) (0.1%) $1,137 0.4% 6% 5.96% in usd $701 0.2% $12,023 3.5% 5% IG (ETFs) $382 0.1% $17,082 6.8% 4% Loan $10 0.1% $3,180 18.3% 3% Govies $2,629 0.3% $50,285 6.0%

2% 1.94% Fixed Income $4,785 0.1% $120,401 3.2%

1% MM $3,576 0.1% $119,961 5.0%

0% Equities $242 0.0% ($16,299) (0.8%) Equities (ETFs) $1,309 0.2% $27,016 4.4% -1% Commodities $1,919 0.6% $13,761 4.8% -2% Global EM debt $3,264 0.4% $33,567 4.7% Jan-26 Feb-26 Mar-26 Apr-26 May-26 Jun-26 Jul-26 Aug-26 Sep-26 Source: EPFR Global. In $mn; week ending 19th Source: EPFR Global August. Data refers to European domiciled funds, BofA GLOBAL RESEARCH except for EM debt funds that refer to global. Some IG funds can also allocate to government bonds. Note Government bond funds registered inflows over the previous week, the eighth week in that IG funds are also split into other currencies away a row. Money market funds also registered inflows last week, their third inflow in a from Euro, USD and GBP. row. Also, Global EM debt funds are now on a three-week run of inflows. Overall, fixed BofA GLOBAL RESEARCH

income funds registered inflows over the past week, marking their twentieth consecutive weekly inflow. Equity funds registered inflows this week, predominantly driven by strong inflows into ETFs.

BofA Securities does and seeks to do business with issuers covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. Refer to important disclosures on page 7 to 9.

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

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