UPDATE 2-U.S.-based taxable bond funds attract record $8.88 bln inflow

Thu May 9, 2013 8:37pm EDT

By Sam Forgione
    NEW YORK, May 9 (Reuters) - Investors in funds based in the
United States poured a record $8.88 billion into taxable bond
mutual funds and exchange-traded funds in the latest week even
as the S&P 500 hit record highs, data from Thomson Reuters'
Lipper service showed on Thursday. 
    Taxable bond ETFs had record inflows of $4.49 billion over
the week ended May 8, while taxable bond mutual funds had
inflows of about $4.4 billion, the most since early January.
    "There is still concern that the equity markets may be
running a bit hot," said Matthew Lemieux, analyst at Lipper, on
the record demand for bonds. Lipper began tracking figures on
fixed-income flows at the start of 1992.
    Funds that hold U.S. Treasuries stood out with record
inflows of about $1.45 billion, led by cash gains of $1.47
billion into the iShares Barclays 3-7 year Treasury Bond Fund
. The fund, an ETF, has exposure to Treasury bonds with
maturities between 3 and 7 years.  
    Lemieux said the fresh cash poured into the Treasury ETF
suggests that institutional investors are becoming concerned
about a correction in U.S. stock markets despite low yields on
government bonds.
    Thursday, the yield on the benchmark 10-year Treasury note
 slipped 2/32 to yield 1.814 percent.
    ETFs are generally believed to reflect the investment
behavior of institutional investors, while mutual funds are
viewed as representing retail investors.
    The U.S. Federal Reserve is buying $45 billion in Treasury
bonds and $40 billion in agency mortgage bonds per month in an
attempt to spur economic growth and drive down interest rates.
The Fed announced on May 1 that it may increase or reduce the
pace of purchases as the outlook for inflation and the labor
market changes.
    Investment-grade corporate bond funds also saw record
inflows of $3.7 billion. Those inflows included cash gains of
roughly $1.04 billion into funds that hold bank loans, which are
protected against rising interest rates by being pegged to
floating-rate benchmarks. 
    High-yield "junk" bond funds also saw high inflows of $789.4
million, the most in nine weeks. Investors tend to favor riskier
high-yield debt when stock markets do well, Lemieux said. 
    Stock funds, meanwhile, had inflows of $7.74 billion over
the week, the most in eight weeks. Demand for stock ETFs
accounted for much of the cash gain, as the funds reaped $5.9
billion in new cash over the week. Stock mutual funds, by
comparison, had inflows of $1.84 billion, down slightly from the
prior week. 
    The benchmark S&P 500 hit record closing highs for
five straight days over the reporting period, buoyed by strong
corporate results and accommodative monetary policies from the
U.S. Federal Reserve.  
    An unexpectedly strong April jobs report showing that
non-farm payrolls rose by 165,000 over the month and a drop in
the  unemployment rate to a four-year low of 7.5 percent boosted
stocks over the week.
    Funds that hold only U.S. stocks had inflows of $5.34
billion, which was the most new cash into the funds in eight
weeks. The SPDR S&P 500 ETF attracted hefty inflows of
$5.44 billion over the week as the S&P 500 rallied. The index
rose 3.2 percent over the reporting period.
    The appetite, or lack thereof, for equities serves as an
important barometer of investor confidence and how people feel
about the state of economic growth.
    Emerging market stock funds had inflows of $1.04 billion
over the week, the most since mid-February. The MSCI world index
, which tracks stocks in 45 countries, rallied
2.5 percent over the reporting period. 
    Flexible funds, which can invest in both stocks and bonds 
of any origin, had inflows of $2.5 billion, the most since
November 2009. 
    Money market funds, which are low risk vehicles that invest
in short-term instruments, had inflows of $16.45 billion over
the week after suffering outflows of $19.3 billion the prior
week.
    The weekly Lipper fund flow data is compiled from reports
issued by U.S.-domiciled mutual funds and exchange-traded funds.
    The following is a broad breakdown of the flows for the
week, including exchange-traded funds (in $ billions):  
 Sector                    Flow Chg   %        Assets     Count
                           ($Bil)     Assets   ($Bil)     
 All Equity Funds          7.744      0.24     3,360.573  10,192
 Domestic Equities         5.341      0.22     2,489.888  7,532
 Non-Domestic Equities     2.403      0.28     870.685    2,660
 All Taxable Bond Funds    8.881      0.55     1,633.021  4,926
 All Money Market Funds    16.446     0.72     2,297.892  1,348
 All Municipal Bond Funds  0.022      0.01     327.760    1,392