It finally happened. Global investors hit the brakes, hard.
During the week ending May 23, global equity funds saw their largest weekly outflow in six weeks, bleeding a staggering $9.4 billion, according to LSEG Lipper data. That’s a shocking reversal from the $20 billion in inflows just the week before.
The U.S. Debt Bomb Just Went Off (Figuratively… for Now)
The trigger was a perfect storm of rising U.S. Treasury yields, growing debt fears, and Moody’s sovereign credit rating downgrade on the United States, all set off by a controversial tax-and-spending package recently passed in the House of Representatives.
Long-dated Treasury yields spiked dramatically. The 30-year yield soared to a 19-month high, coming dangerously close to levels not seen since 2007; yes, pre-financial crisis territory.
“After the turmoil in April and now this debt spiral, investors have started asking the tough question: Is the U.S. still the safest place to park my money?” said John Higgins, chief markets economist at Capital Economics.
Apparently not.
U.S. Equity Funds Led the Retreat, and It Wasn’t Pretty
U.S. stock funds were hit the hardest, posting $11 billion in redemptions, dragging global equities into the red. Asian equity funds lost another $4.6 billion, while European equities were the lone bright spot, gaining $5.4 billion in inflows. But that wasn’t enough to stop the bleeding.
The sell-off mirrored movements in the markets. The Dow and S&P 500 each dropped more than 0.6%, while the Nasdaq tumbled 1%, reflecting a widespread investor exodus.
Investors Fled to the “Safe Stuff”, But Even Gold Got Dumped
With equity panic in the air, investors rushed into bonds, pouring $21.6 billion into global bond funds. This includes $7.6 billion into U.S. bond funds, $11 billion into European bonds, and $1.8 billion into Asian bond funds.
Even money market funds bounced back from the prior week’s outflows, pulling in $18.1 billion.
Yet, oddly, gold and precious metals didn’t benefit. In fact, gold funds suffered $1.7 billion in outflows, marking their third straight week of losses. A surprising twist, given gold’s “safe haven” reputation.
Emerging Markets are Still Standing (For Now)
In contrast, emerging market (EM) bonds continued to gain traction, with $403 million in fresh inflows. EM equity funds saw minor outflows but still held strong year-to-date, with $10.6 billion in inflows, which is a 43% increase from the same period in 2024.
“The renewed EM interest is a warning sign,” said Alison Shimada, portfolio manager at Allspring Global Investments. “Investors are starting to question the long-standing dominance of the U.S. economy.”
