U.S. investors remained net sellers of bond funds in the week to May 4 as the economy's rising inflationary challenges fanned caution ahead of the Federal Reserve's policy meeting this week.

According to Refinitiv Lipper data, U.S. investors offloaded $5.52 billion worth of bond funds in a 17th straight week of net selling.

The U.S. benchmark 10-year Treasury yield hit nearly a 3-1/2-year high of 3% this week after reports last week showed rising U.S. consumer spending in March and surging labor costs in the first quarter.

'Unpleasantries' Ahead

After an expected 50-basis-point hike to the central bank's benchmark overnight interest rate on Wednesday, Fed Chair Jerome Powell ruled out raising rates by 75 basis points in a coming meeting, although he made clear the rate increases the Fed already has in mind were "not going to be pleasant."

Investors sold U.S. taxable bond funds worth $3.82 billion and municipal funds worth $1.75 billion.

U.S. short/intermediate investment-grade funds witnessed net selling of $5.46 billion in a 17th straight week of outflows. Loan participation funds, however, obtained inflows of $0.83 billion, the largest amount in three weeks.

Meanwhile, U.S. equity funds' weekly outflows eased to a four-week low of $3.76 billion.

U.S. value funds posted their first weekly inflow in seven weeks, worth $854 million, while growth funds saw net selling of $3.93 billion, although that was the lowest outflow in four weeks.

Utilities In Favor

Among sector funds, tech and financials lost $724 million and $593 million, respectively, in net selling, while utilities saw net buying of $542 million.

U.S. money markets drew net purchases of $2.63 billion, although there was a 94% drop in inflows compared with the previous week.