UPDATE 2-U.S.-based taxable bond funds post $8.62 bln outflows -Lipper
By Sam Forgione June 27 (Reuters) - Investors in funds based in the United States pulled $8.62 billion out of taxable bond funds in the latest week, marking the first four-week streak of outflows from the funds since 2008, data from Thomson Reuters' Lipper service showed on Thursday. The outflows from taxable bond funds over the week ended June 26 were up from outflows of $507.9 million the prior week. Stock funds, meanwhile, had outflows of $6.8 billion over the reporting period, the most since late April. The outflows from bond and stock funds came as fears persisted that the U.S. Federal Reserve might reduce its $85 billion in monthly purchases of Treasuries and agency-mortgage securities. The Fed's purchases have kept interest rates low and helped underpin the rally in U.S. stocks this year. "It's a culmination of concerns about what the outcome will be when tapering goes into effect," said Lipper analyst Matthew Lemieux of the outflows. Taxable bond mutual funds in particular saw a plunge in demand in the latest week, as investors pulled $6.43 billion out, the most since October 2008. Taxable bond exchange-traded funds, meanwhile, saw outflows of $2.19 billion, also a drop in demand after gaining $111.24 million in new cash the prior week. ETFs are generally believed to represent the investment behavior of institutional investors, while mutual funds are thought to represent the retail investor. The yield on the benchmark 10-year U.S. Treasury note rose 19 basis points to 2.54 percent over the reporting period on fears that the Fed will scale back its bond-buying. As yields rise, prices fall. Funds that hold inflation-protected bonds, including Treasury Inflation-Protected Securities, or TIPS, suffered record outflows of $908.15 million in the latest week. The outflows were up from $810.6 million the prior week. Investors have pulled $9.93 billion from the funds so far this year, putting them on pace to set a record for annual outflows. Many investors have said that inflation is not an imminent concern. Jeffrey Gundlach, chief executive of DoubleLine Capital, said on Thursday in an investor webcast that "there is no message of inflation in the market. Gold looks like death." Commodities and precious metals funds, which mainly invest in gold futures, had outflows of $1.57 billion in the latest week, up from $464.7 million in outflows the previous week. Gold is widely viewed as an inflation hedge. The price of spot gold fell 9.3 percent over the week to its lowest in nearly three years on fears that the Fed would rein in its monetary policy. Municipal bond funds also suffered $4.53 billion in outflows, the largest on a record going back to 1992 and more than double the $2.22 billion of outflows from the prior week. Investors pulled cash out of municipal debt funds as a result of continued rising interest rates on government bonds, said Lemieux of Lipper. He also said investors may be worried that rising interest rates will make it more difficult for municipalities to finance their debt. Investment-grade corporate bond funds were also hit hard in the latest week. Investors pulled $2.3 billion from the funds, the most since October of 2008. Funds that hold riskier high-yield bonds, meanwhile, had outflows of $3.12 billion in the latest week, up sharply from outflows of $332.9 million the prior week. Funds that hold bank loans remained a refuge for investors, who poured about $1.08 billion into the funds, down modestly from inflows of $1.4 billion the prior week. Bank loans are protected from rising interest rates by being pegged to floating-rate benchmarks. Volatility increased in the latest week after Fed Chairman Ben Bernanke said on June 19 that the central bank could reduce its stimulus later this year, and end it altogether in mid-2014, if the economy looked strong enough. The S&P 500 fell 1.6 percent over the latest week. The outflows of $6.8 billion from stock funds reversed inflows of $4.71 billion the prior week. The latest outflows were on account of investors pulling $8.36 billion from stock ETFs. The SPDR S&P 500 ETF Trust in particular had big outflows of $3.57 billion. Stock mutual funds, however, had inflows of $1.56 billion, the most in five weeks. Stock mutual funds have seen inflows every week this year. Retail investors have decided to remain in stock funds in recent weeks to avoid the credit selloff, said Lemieux of Lipper. Funds that hold Japanese stocks suffered outflows of $124.7 million, their fourth consecutive week of outflows. Investors have soured on Japanese stock funds after a record 28-week streak of inflows. The Bank of Japan announced on April 4 that it would inject $1.4 trillion into the nation's economy in less than two years to fight deflation, mainly through purchases of long-term Japanese government bonds. The stimulus helped boost Japan's Nikkei index 50 percent this year through May 22 before plunging over 15 percent this month in the wake of Bernanke's remarks. 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 -6.800 -0.20 3,244.143 10,285 Domestic Equities -6.357 -0.25 2,449.442 7,586 Non-Domestic Equities -0.443 -0.05 794.701 2,699 All Taxable Bond Funds -8.622 -0.54 1,557.678 4,930 All Money Market Funds 5.007 0.22 2,323.354 1,353 All Municipal Bond Funds -4.533 -1.44 302.789 1,390
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