Tags: Lipper | Taxable | Bond | Funds

Lipper: Taxable Bond Funds Suffer First Outflows in 3 Weeks

Thursday, 01 August 2013 08:18 PM

Investors in funds based in the United States pulled $954.9 million out of taxable bond funds in the week ended Wednesday as investors awaited signs from the Federal Reserve regarding its bond-buying stimulus, data from Thomson Reuters' Lipper service showed on Thursday.

The outflows from taxable bond funds in the week ended July 31 reversed inflows of about $8.3 billion over the previous two weeks.

Investors put money to work in bond funds on greater assurance that the Fed was flexible on the timing for ending its stimulus.

"Everyone was waiting with bated breath for what the FOMC was going to put out," said Tom Roseen, head of research services at Lipper, in reference to the Wednesday statement from the Federal Open Market Committee.

Roseen added that investors grew nervous that the Fed could start reducing its stimulus this year if Friday's U.S. jobs report for July showed positive employment growth. That nervousness led them to spurn bond funds, he said.

The Fed is buying $85 billion in Treasurys and agency mortgages monthly in an effort to spur hiring and lower long-term borrowing costs. Investors fear that interest rates will rise once the Fed begins pulling back its stimulus.

Investors pulled $1.27 billion out of taxable bond mutual funds, the most in five weeks. Exchange-traded funds that hold taxable bonds saw inflows of $318.2 million, which were still less than half the prior week's inflows.

ETFs are generally believed to represent the investment behavior of institutional investors, while mutual funds are thought to represent the retail investor. Investors soured on riskier high-yield junk bond funds over the week.

The funds suffered $1.03 billion in outflows, reversing inflows of $3.28 billion the prior week, which showed the most demand for the funds since October 2011. Taxable bond funds include funds that hold all bond types except for municipal bonds, which are tax-free.

Investors withdrew $2.24 billion from municipal bond funds over the weekly period, the most in five weeks and extending the funds' outflow streak to 10 weeks. Investors fear that rising interest rates will hit municipal bonds, which tend to move in tandem with Treasurys, said Roseen of Lipper.

Investors are also rattled by the city of Detroit's bankruptcy filing on July 18 and worried about other cities going bankrupt, Roseen added. While investors pulled $147.5 million out of mutual funds that hold Treasurys – marking the eighth straight week of outflows from the funds – Treasury ETFs gained $292.5 million, the first inflows in four weeks and accounting for overall inflows of $145 million into Treasury funds.

Investors pulled $196.7 million out of inflation-protected bond funds, including those that hold Treasury Inflation-Protected Securities or TIPS, marking their 16th straight week of outflows. The latest outflows were the least since mid-May, however, and were down modestly from outflows of $308.6 million the prior week.

Funds that hold floating-rate bank loans, which are protected from rising interest rates by being pegged to floating-rate benchmarks, had inflows of $1.34 billion, down from the prior week's record inflows of $1.85 billion.

Investors gave $6.61 billion in new cash to stock funds over the weekly period, meanwhile, marking the fifth straight week of inflows into the funds. Those cash gains were up from inflows of $5.37 billion in the prior week.

The S&P 500 fell 0.01 percent over the weekly period on mixed corporate earnings, along with caution ahead of the Fed's comments and the U.S. government's monthly jobs report due at the end of the week.

Despite stock market volatility, funds that hold U.S. stocks attracted $4.65 billion. Of that sum, $3.72 billion flowed into U.S. stock ETFs, including inflows of $2.82 billion into the SPDR S&P 500 ETF Trust.

Emerging market stock funds also gained $589.8 million in new cash from investors over the week, the most in four weeks even as the MSCI world equity index fell 0.83 percent over the period.

Investors also poured $643 million into funds that hold European stocks, the most in seven weeks. Europe saw positive economic data over the period, including figures showing the number of people out of a job in the eurozone fell for the first time in more than two years in June.

Japanese stock funds suffered outflows of $336.4 million in the latest week, however, marking the first outflow in five weeks. Japan's Nikkei average fell 7.2 percent over the reporting period, with investors worried about a stronger yen and that plans to increase the country's sales tax – its most significant fiscal reform in years – could be watered down.

Commodities and precious metals funds, which mainly invest in gold futures, suffered outflows of $99.8 million over the week, their 18th straight week of outflows but down modestly from withdrawals of $127.7 million the prior week.

The weekly Lipper fund flow data is compiled from reports issued by U.S.-domiciled mutual funds and exchange-traded funds.

© 2019 Thomson/Reuters. All rights reserved.

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Investors in funds based in the United States pulled $954.9 million out of taxable bond funds in the week ended Wednesday as investors awaited signs from the Federal Reserve regarding its bond-buying stimulus, data from Thomson Reuters' Lipper service showed.
Thursday, 01 August 2013 08:18 PM
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