British investors are withdrawing their investments from bond funds due to the turmoil in the US Treasury market.
In April 2021, UK investors showed a keen interest in shedding their bond fund holdings to the tune of £1.2bn. The reason behind this mass exodus? You guessed it, good ol' Trump's tariffs.
As Treasury yields skyrocketed due to worry about the US's fiscal might, investors bolted from this asset class faster than greased lightning, thanks to data from Calastone. The US bond market was on the brink of a "meltdown", according to some analysts, before Trump finally stepped in and pullded a U-turn on his tariffs, granting a reprieve for 90 days.
The value of the almighty greenback took a nosedive, too, adding fuel to the fire and further eroding confidence in US government bonds. Bond fund sell-offs reached their second-worst levels on record that month, with net sell-offs reaching a whopping 46% higher than the third-worst month on record.
Sovereign bond funds bore the brunt of the pain, with an outflow of £621m – a record-breaking worst month, by far. Edward Glyn, head of global markets at Calastone, noted that bond markets have been a wild rodeo, as investors struggle to calculate the impact of US political announcements on trade as well as the threats to the independence of the US Federal Reserve.
While many flocked to safe-haven money market funds, depositing £589m in the fifth-best month on record and the strongest three-month period ever, equity fund investors zoomed in on North American funds, pouring £1.5bn into the sector as they attempted to "buy the dip" in the US market.
In contrast, emerging markets and Asia-Pacific funds suffered substantial outflows, thanks to their exposure to China. As tariffs against the country from the US reached 145%, sentiment soured big time. Meanwhile, investors pulled £521m from UK-focused equity funds, the lowest amount since July 2024 (if October and November are disregarded), as trading patterns were heavily disrupted by changes to capital gains tax.
Charles Hall, head of research at Peel Hunt, declared that UK equity funds have had only one month of inflows in the last 47 months, as investors continue to prefer growth-focused US assets over domestic investments. "Anyone who says this isn't structural needs to think again," Hall said. "If the government wants a thriving equity capital market that supports growth companies, it needs to take immediate action."
Property funds also continued to see red, losing £116m in April, a 23% increase over the month’s average over the past year. Buy orders for the asset class dropped sharply to £106m, their second-lowest on record. Glyn added, "The US tariff hokey-pokey policy has dealt a significant blow to confidence in the global economy, with economists slashing their growth forecasts all over the place."
So there you have it, folks. Trump's tariffs might've been as inconsistent as a game of hokey-cokey, but they certainly left their mark on the global economy – and our UK bond holdings.
- In April 2021, UK investors sold £1.2bn worth of bond funds, prompted by Trump's tariffs.
- Investors abandoned the US bond market due to concerns about the US's fiscal might, with treasury yields soaring.
- Analysts predicted a "meltdown" in the US bond market before Trump reversed his tariffs, offering a 90-day reprieve.
- The value of the US dollar fell, exacerbating worries about US government bonds.
- Bond fund sell-offs hit their second-worst levels on record in April, with net sell-offs reaching 46% more than the third-worst month.
- Sovereign bond funds experienced an outflow of £621m, marking the worst month ever.
- Property funds also noticed a loss of £116m in April, a 23% increase over the average of the past year, as Trump's tariffs affected overall confidence in the global economy.
