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Commentary

Investors Return to Bonds in January

International-equity fund flows pick up, and bank loan funds find an audience.

Any new beginning is uncertain, and this held true for markets in the first month of 2017. The new president’s promises of tax cuts and infrastructure spending appeared to spur newfound confidence in U.S. equities late last year, driving flows into U.S.-equity funds in November and December. January, however, saw a much smaller amount stream into U.S.-equity funds, and the majority of the flows redirected to fixed-income and international-equity funds.

The Federal Reserve raised rates in December for the second time since the 2008 crisis (the first time was exactly a year before, in December 2015). Despite the fact that traditional bonds do not typically perform well in rising-rate environments, investors still chose taxable-bond funds in the month following the rate increase.