UK investors flee bond funds amid US Treasury turmoil
UK investors sold £1.2bn of bond fund holdings throughout April, as US bond markets fell into turmoil over Trump’s tariffs.
As Treasury yields spiked during the month over fears around the fiscal ability of the US, investors fled the asset class in droves, according to data from Calastone.
At one point last month, analysts were warning of a “meltdown” in the US bond market, before Trump eventually moved to suspend his tariffs for 90 days.
Worsening the problem was a sharp dip in the value of the US dollar, which further harmed confidence in US government bonds.
Selling of bond funds reached their second worst level on record last month, beaten only by capital flight in April 2020. Net selling of bond funds reached 46 per cent higher than the third worst month of record.
The selling was concentrated in sovereign bond funds, which saw £621m of outflows, their worst month on record by far.
“Bond markets have whipsawed as investors try to price the impact on the global economy of ever-changing US policy announcements on trade as well as threats, both made and rowed back on, to undermine the independence of the US Federal Reserve,” said Edward Glyn, head of global markets at Calastone.
Instead, investors fled to safe-haven money market funds, depositing £589m in the fifth best month of record and the strongest three-month period in history.
For equity funds, North American funds accounted for the entire £1.5bn of flows into the sector, as UK investors attempted to ‘buy the dip’ in the US market.
In contrast, emerging markets and Asia-Pacific funds suffered significant outflows thanks to their exposure to China, with sentiment souring as tariffs against the country from the US reached 145 per cent.
Meanwhile, investors pulled £521m from UK-focused equity funds, the lowest amount since July 2024 if October and November are ignored, as trading patterns were heavily distorted by changes to capital gains tax.
Charles Hall, head of research at Peel Hunt, noted that UK equity funds have had just one month of inflows in the last 47 months, as investors continue to prefer more growth-focused US assets over investing domestically.
“Anyone who says this isn’t structural needs to think again,” said Hall. “If government wants a thriving equity capital market that supports growth companies then it needs to take urgent action.”
Property funds also continued to sell off, losing £116m in April, 23 per cent more than the month average over the last year. Buy orders for the asset class dropped sharply to £106m, their second lowest on record.
“The US hokey-cokey tariff policy has significantly undermined confidence in the global economy with economists everywhere slashing their forecasts for growth,” added Glyn.
“This is bad news for property funds which rely on a healthy business environment to support tenant demand.”