US Rates Research: Flow of Funds — Rally cools long-end demand

Weekly bond fund inflows slowed to $6bn as long-term government demand reversed sharply amid the rally. Corporate bond fund inflows also moderated but more modestly. Banks continued to reduce MBS, while higher-frequency foreign demand indicators stayed soft. Fixed income ETF and mutual fund inflows slowed sharply over the five days through October 15, with funds taking in about $6bn, well below the prior four-week average pace of $16bn. Aggregate weekly inflows ranked at just the 3rd percentile versus the past six months, bringing year-to-date inflows to $545bn. Government bond fund demand weakened, driven by a sharp reversal at the long end amid the rally: long-term government funds moved into outflow territory, with demand falling to the 3rd percentile of its six-month history, following several weeks of exceptionally strong inflows. Short-term government demand moderated to the 49th percentile, while intermediate-term government fund demand remained robust at the 83rd percentile. Th