U.S.-based bond funds see about $2.9 bln of outflows -ICI

Wed Feb 12, 2014 2:31pm EST

By Sam Forgione
    NEW YORK, Feb 12 (Reuters) - Investors in U.S.-based mutual
funds pulled about $2.9 billion out of bond funds in the week
ended Feb. 5 even as weaker-than-expected U.S. economic data
pushed safe-haven bond prices higher, data from the Investment
Company Institute showed on Wednesday. 
    The outflows from bond funds in the week ended last
Wednesday were the biggest in six weeks, according to data from
ICI, a U.S. mutual fund trade organization. 
    U.S.-based stock funds, meanwhile, attracted $1.9 billion in
new cash. 
    While taxable bond funds posted outflows, resulting in net
outflows from all bond funds, tax-free municipal bond funds
posted small inflows of $146 million. That marked their fourth
straight week of inflows. 
    The net outflows from bond funds marked the third straight
week of withdrawals and came despite a rise in safe-haven
Treasuries prices on weaker-than-expected data on U.S. factory
activity.
    The yield on the 10-year U.S. Treasury note fell to 2.57
percent after the data, its lowest since the beginning of
November. Bond yields move inversely to prices.
    "We've returned back to that pattern of moderate outflows
from bond funds. I think it really is reflective of the overall
rising interest rate environment," said Brian Reid, chief
economist at ICI. 
    The latest outflows from bond funds came after two weeks of
inflows at the start of this year. Some investors were
optimistic that bonds, which largely posted losses last year on
fears that a pullback in the Federal Reserve's bond-buying would
trigger a spike higher in interest rates, would rebound this
year.  
    While the yield on the 10-year U.S. Treasury note has fallen
so far this year, it rose more than 1 percentage point last year
after then-Fed chairman Ben Bernanke signaled in May that the
central bank could begin reducing its purchases.
    Among stock funds, those that mainly hold U.S. stocks had
outflows of about $1.6 billion, marking their first outflows in
four weeks, while funds that specialize in non-U.S. stocks
attracted about $3.5 billion. 
    The inflows into funds that specialize in non-U.S. stocks
came even as global stock markets fell on fears of a protracted
flight out of emerging market assets and on the weak U.S.
economic data. 
    "For the past decade, Americans have been reducing their
allocation to domestic funds and increasing their allocation to
world stock funds," Reid said.
    MSCI's world equity index fell 2 percent
over the weekly reporting period, while the benchmark Standard &
Poor's 500 stock index fell 1.3 percent. 
    The latest weekly inflows into non-U.S. stock funds were
common in recent months, however. The funds last recorded
outflows in the week ended May 1 of last year, according to ICI
data. 
    Hybrid funds, which can invest in stocks and fixed income
securities, attracted $1.4 billion in new cash, down modestly
from the prior week but still marking their 18th straight week
of inflows. 
    The following ICI data shows estimated flows for the past
five weeks (all figures in millions of dollars) :
                   1/8/2014     1/15      1/22     1/29      2/5
 Total Equity            34    8,040     6,452    5,482    1,886
    Domestic         -2,765    4,242     2,493    1,881   -1,564
    World             2,799    3,798     3,959    3,601    3,450
 Hybrid*              1,102    1,055     1,642    1,738    1,385
 Total Bond           2,730      967      -262     -948   -2,860
    Taxable           3,069      727      -382   -1,458   -3,006
    Municipal          -339      239       121      510      146
 Total                3,865   10,062     7,833    6,272      411
 *Hybrid funds can invest in stocks and/or fixed income
securities.
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