LONDON, March 4 (Reuters) - Investors rediscovered their risk appetite with a vengeance in the last week, as high-yield bond funds posted their biggest net inflow on record and government bond funds their highest outflow in four months, Bank of America Merrill Lynch said on Friday.
Investors poured a "monster" $5.8 billion into high yield funds in the week to March 2, BAML said, the most on record in nominal terms and the highest as a percentage of assets under management since July 2013.
They also pulled a net $2.4 billion from government and Treasury bond funds, the biggest outflow in 16 weeks, it said in its weekly flows report this week titled: "It's Back On in Credit".
This "risk on" trend should peter out in the coming weeks, however, because monetary policy decisions from the European Central Bank, U.S. Federal Reserve and Bank of Japan are likely to fall short of market expectations.
"Complacency is creeping back in and we do not think policy makers will beat expectations - the ECB has the highest hurdle - thus the risk rally is likely to peter out in coming weeks," the bank's global strategy team led by Michael Hartnett said.
The hunt for yield wasn't as strong across other asset classes. Equity funds snapped an eight-week run of outflows but the net inflow of $200 million was small. Investors pulled $1.7 billion out of European equity funds, the fourth outflow in a row.
Gold funds attracted inflows for the fourth week in a row, bringing the four-week total up to $7.9 billion, the largest in seven years, said BAML. Gold is traditionally viewed as a safe haven from uncertainty. (Reporting by Jamie McGeever; Editing by Hugh Lawson)