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Fund flows show investors still cautious

With data as of last week, ICI's tally of equity fund flows shows no net inflows for the past two months, even as equity prices have hit new all-time highs. Bond funds, meanwhile, continue to enjoy strong inflows, even as bond yields remain very near all-time lows. Mutual fund flows thus reflect a market that is still dominated by caution.

The chart below is a reminder of just how low 10-yr Treasury yields are from a long-term historical perspective:

The chart below is a reminder that the real yield on TIPS tends to track the economy's health:

Negative real yields imply that investors have very pessimistic assumptions for economic growth over the next few years. This jibes with the dearth of equity fund inflows. There is a real shortage of optimism out there.

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