U.S.-based bond funds attract $5.5 bln, most in year - trade group

Wed May 14, 2014 11:28am EDT

By Sam Forgione
    NEW YORK, May 14 (Reuters) - Investors in U.S.-based mutual
funds poured $5.5 billion into bond funds in the week ended May
7, marking the biggest inflows in a year on continued
outperformance in the sector, data from the Investment Company
Institute (ICI) showed on Wednesday. 
    Investors committed the most new cash to bond funds since
the week ended May 8, 2013, which was shortly before a bond
market selloff accelerated on fears of a pullback in the Federal
Reserve's bond-buying, according to data from ICI, a U.S. mutual
fund trade organization. 
    The inflows also marked the 13th straight week of new demand
 for the funds after last year's selloff spurred record annual
outflows.
    Stock funds attracted $755 million in inflows over the week.
    Funds that hold tax-free municipal bonds attracted $1.1
billion over the week, their biggest inflows since January 2013.
Taxable bond funds attracted $4.4 billion in new cash, their
biggest inflows in eight weeks. 
    "With bonds having reversed their declines, with stocks
getting to areas where people start getting nervous, there is a
very natural but usually wrongheaded instinct to swap back into
bonds," said Michael Jones, chief investment officer of
RiverFront Investment Group in Richmond, Virginia, with $4.5
billion in assets. 
    The inflows into stock funds reversed outflows of $3.9
billion in the prior week, which were the biggest in a year.
Funds that specialize in U.S. stocks posted about $2 billion in
outflows in the latest week, while funds that mainly hold
non-U.S. stocks attracted $2.7 billion in new cash. 
    Hybrid funds, which can invest in both stocks and
fixed-income securities, posted $500 million in outflows,
marking their first outflows since December of last year. 
    Bond prices have recovered this year. The benchmark Barclays
U.S. Aggregate bond index has risen 3.1 percent this year
through Tuesday after declining more than 2 percent last year.
The gain in the index has also surpassed the S&P 500 stock
index's 2.7 percent return over the same period.
    Yields on 30-year Treasury bonds fell to 3.39 percent on May
1, marking their lowest level since mid-June 2013, ahead of U.S.
nonfarm payrolls data for April. Yields on benchmark 10-year
U.S. Treasury notes fell 6 basis points to 2.59 percent over the
weekly period. Bond yields move inversely to their prices. 
    The S&P 500, meanwhile, fell 0.3 percent for the week on
geopolitical tensions surrounding Ukraine and after enthusiasm
over strong U.S. jobs growth was undercut by flat wages and a
decline in the number of people looking for work.
    The following table shows estimated ICI flows for the past
five weeks (all figures in millions of dollars):
                  4/9/2014     4/16     4/23     4/30       5/7
 Total equity        5,761    2,286    3,530   -3,892       755
    Domestic         2,080      634    1,392   -3,998    -1,963
    World            3,681    1,652    2,138      106     2,717
 Hybrid*             1,482    1,186    1,229      767      -499
 Total bond          1,609      633    1,987      887     5,493
    Taxable          1,448      604    1,456      558     4,418
    Municipal          161       29      531      329     1,076
 Total               8,852    4,105    6,745   -2,238     5,749
  * Hybrid funds can invest in stocks and/or fixed income
securities.

 (Reporting by Sam Forgione; Editing by Jeffrey Benkoe)
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