Money market funds worldwide have $70 billion outflow: BofA
NEW YORK (Reuters) - Investors worldwide pulled $70 billion out of money market funds in the latest week on fears of a possible U.S. government default, a Bank of America Merrill Lynch Global Research report showed Friday.
The outflows from money market funds in the week ended on Wednesday were the biggest since August 2011, when a previous round of debt ceiling debates led Standard & Poor's to cut the United States' credit rating to AA-plus from AAA.
Without the debt ceiling increase reached on Wednesday, the government would have faced a default on some of the short-term Treasuries held in money funds. Traders feared this would wreak havoc on the global economy.
Late Wednesday, the U.S. Congress passed a deal to prevent the United States from defaulting and to end the government shutdown.
Yields on one-month Treasury bills jumped to a five-year high of 0.38 percent the day before the debt deal was reached. The political brinkmanship also led Fitch Ratings to place the United States' AAA credit rating on watch with negative implications. As yields rise, prices fall.
Stock funds worldwide attracted $17.2 billion in new cash during the week, according to the report, which also cited data from fund-tracking firm EPFR Global. The inflows were the biggest in four weeks.
The new demand came as the S&P 500 stock index rallied 3.9 percent over the week on hopes that lawmakers would reach a deal to raise the $16.7 trillion borrowing limit.
While $10.6 billion of the new money went into U.S. stock funds, funds that hold European stocks attracted $3.4 billion, their third-largest weekly inflow since records began in 2002. This was also the 16th straight week that the European stock funds have drawn new cash.
The FTSEurofirst 300 index of top European shares rallied 3.3 percent, and MSCI's world equity index rose 3.2 percent during the week on hopes of a U.S. debt deal.
Emerging market stock funds attracted $900 million in new money. They have had inflows in five of the past six weeks, according to the report.
Bond funds worldwide had outflows of $3.3 billion in the latest week, marking the third straight week of withdrawals. Riskier high-yield bond funds, however, attracted $1.7 billion in new cash in their sixth straight week of inflows.
Funds that hold government bonds, mainly U.S. Treasuries, had outflows of $900 million in their sixth straight week of withdrawals. Investment-grade bond funds also had a weak showing with outflows of $2 billion, their largest since late June.
Precious metals funds, which mainly hold physical gold, had $1.1 billion in outflows, their largest withdrawals in 14 weeks. On October 10, gold fell 1.5 percent to below $1,290 an ounce as investors' risk appetite grew and bets on safe-havens decreased.
Funds that hold Japanese stocks attracted $600 million in new cash, marking the sixth straight week of new money for them as Japan's Nikkei average rallied 3.1 percent over the week.
(Reporting by Sam Forgione Editing by W Simon and Lisa Von Ahn)
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