Friday 17 February 2017 1:32 pm

Investors pull money from Europe as the draw of Trump strengthens

The potential for chaos in Europe ahead of multiple elections and the recurrence of the Greek debt crisis have prompted investors to move money out of the region.

Redemptions from funds invested in European bonds reached an 11-week high in the second week of February as Italian bond funds saw their biggest outflow for more than seven months, according to data company EPFR.

Borrowing costs for governments in Europe’s politically vulnerable nations have risen as investors eye the possibility of chaos in forthcoming elections. Yield spreads, the difference between the returns on bonds, point to diverging views on countries with the Eurozone.

Read more: Will Trump's election burst the bond bull run's bubble?

Yields on 10-year government bonds in France have risen by 24 basis points in the past month, in comparison to a one basis points fall in the German benchmark 10-year. Meanwhile Italian yields have risen further, with a 28 basis point increase since mid-January. Yields move inversely to prices.

The French economy has been threatened by an increased risk of anti-euro far-right politician Marine Le Pen winning the Presidency, after favourite Francois Fillon was undermined by a scandal over payments to his wife. Meanwhile Greece has been undermined by a public spat between lenders over a possible bailout.

Investors have poured money into US equity markets in continued anticipation of an ardently growth-focused agenda for President Donald Trump, after the grand rotation of money from bonds to riskier stocks lost some of its momentum.

He addresses the US Congress on 28 February, when investors are hoping to glean more detail on the size and scope of his promised infrastructure spending programme, as well as tax cuts.

Read more: Would the Eurozone survive Grexit?

The S&P 500, the main US equity benchmark for professional investors, has reached repeated record highs in recent weeks, while the symbolic Dow Jones Industrial Average is hovering around the 20,600 points mark after wavering below 20,000 for much of December and January.

US equity and bond funds saw $14bn of inflows during the second week of February, with infrastructure and industrial-sector funds continuing to benefit from Trump’s plans.