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By Jemima Kelly
LONDON, Sept 9 (Reuters) - Investors poured money into emerging market bonds in the latest week - taking inflows over the past 10 weeks to the most ever - while pulling cash out of lower-yielding developed market government debt, Bank of America Merrill Lynch said on Friday.
Emerging market stocks also continued to be in vogue in the week ending Sept. 7, attracting inflows for the 10th straight week, BAML said.
Investor appetite for riskier assets showed no sign of diminishing, gravitating to higher rates of return as expectations of a U.S. interest rate hike this year remained relatively low and monetary policy elsewhere remained loose.
Markets are pricing in a less than a 1-in-5 chance that the U.S. Federal Reserve will hike rates this month, and little over a 50 percent chance of a move by the end of the year, according to CME FedWatch.
Investors poured $6.8 billion into corporate credit over the week, with investment-grade bond funds drawing inflows for 26 of the past 27 weeks and high-yield bond funds seeing inflows for nine of the past 10 weeks.
"Long live the credit boom," BAML said in a note to clients. "A 'bond shock' - a fast, unexpected rise in yields - remains the key autumn risk for this crowded asset class."
Low-risk developed market government bonds fund, such as U.S. Treasuries and German Bunds, saw $1.9 billion of outflows, the most in six months.
So-called bond proxies - equities that have safe, predictable returns - were also avoided, BAML said in a note titled "Bond proxies are passé". Investment in utilites fell for the ninth straight month, the longest streak of outflows in six years.
Commodities attracted net inflows - $1.1 billion - for the first time in four weeks, BAML said.
Money market funds continued to lose money, with outlows of $12.8 billion over the week, taking the total year-to-date outflows to just over $84 billion.
Equity funds drew $0.2 billion, having attracted inflows for four of the past five weeks but having seen almost $130 billion of outflows so far this year. (Reporting by Jemima Kelly; Editing by Jamie McGeever/Jeremy Gaunt)