By Sam Forgione
NEW YORK Oct 4 Investors pulled a record $61.5
billion from bond funds worldwide in the third quarter, data
from fund-tracking firm EPFR Global showed Friday, amid fears
that the Federal Reserve would begin scaling back its
The outflows for the quarter ended Sept. 30 were the biggest
since EPFR Global began tracking bond funds overall in January
2004. Expectations grew during the quarter that the Fed would
reduce its $85 billion in monthly bond purchases at its
September meeting, sending yields higher as investors bet
interest rates would spike if the Fed scaled back stimulus.
The yield on the 10-year U.S. Treasury note briefly rose
above 3 percent on Sept. 5, a level not seen since July 2011.
Bond yields move inversely to their prices.
Funds that hold bank loans, which are protected from rising
interest rates because they are pegged to floating-rate
benchmarks, attracted $21 billion in new cash over the quarter.
U.S. bond funds accounted for $41 billion of the total
withdrawals from bond funds over the quarter. Investors also
pulled $17.4 billion from emerging market bond funds over the
quarter, marking the biggest outflows since EPFR Global began
tracking the funds in late 2003.
The Fed's easy money policies have led investors to seek
higher yield in emerging market assets, but emerging markets
lost some of their luster as expectations of a Fed pullback
The Fed surprised investors on Sept. 18 when it said it
would maintain the pace of its bond purchases and await more
evidence of solid economic growth.
The yield on the 10-year Treasury plunged 17 basis points to
2.69 percent following the decision. Investors poured $26
billion into stock funds in the week ended Sept. 18, the most on
record since 1992 according to data from a Bank of America
Merrill Lynch Global Research report and EPFR Global.
In the week ended Oct. 2, investors pulled $900 million from
bond funds, reversing the prior week's inflows of $4.5 billion.
Funds that hold government debt, mainly Treasuries, had outflows
of $2.7 billion in the latest week, according to Bank of America
Merrill Lynch and EPFR Global.
Funds that hold Treasury inflation-protected securities
(TIPS) had withdrawals of $200 million, which marked the 25th
straight week of withdrawals from the funds, according to the
Bank of America Merrill Lynch report,.
TIPS prices have been hit by a bond market selloff following
signals in May that the Fed could scale back its bond purchases
this year. The Barclays U.S. TIPS Index was down 6.6 percent for
Emerging market bond funds had $200 million in outflows in
the latest week, reversing inflows of $600 million the prior
week. Investors showed appetite for high-yield junk bond funds,
however, which pulled in $1.3 billion in new cash in the latest
week. The inflows marked their fourth straight week of new
While investors exited bond funds in the third quarter, they
poured $73 billion into stock funds, according to EPFR Global.
The S&P 500 rose 4.7 percent over the quarter.
Investors have pulled cash out of stock funds in the latest
two weeks, however, according to Bank of America Merrill Lynch.
Stock funds had outflows of $1.3 billion in the latest week,
which came as Congress failed to reach an agreement on the
budget, leading to the U.S. government shutdown that began on
The shutdown was the first in 17 years. Worries also grew of
a looming fight between Democratic and Republican lawmakers over
raising the U.S. debt ceiling. The United States could face an
unprecedented default if Congress does not raise the $16.7
trillion debt limit by Oct. 17.
Outflows from stock and bond funds over the past two weeks
have been small, compared with outflows of $60 billion over the
three weeks beginning July 28, 2011, the report said. Those
outflows came during a prior round of debt ceiling debates that
led Standard & Poor's to cut the U.S. credit rating from AAA to
Emerging market stock funds had outflows of $2.1 billion in
the week ended Oct. 2, marking their first outflows in four
weeks, the report said. U.S. stock funds had outflows of $600
million, a fraction of the prior week's outflows of $7.4
Despite worries over the U.S. government shutdown and debt
ceiling, the S&P 500 stock index rose a slight 0.1
percent over the weekly period. MSCI's emerging market stocks
index fell 1 percent.
European stock funds, meanwhile, attracted $900 million in
new cash, down from inflows of $2.3 billion the prior week. It
was the 14th straight week of inflows.
The FTSEurofirst 300 Index 's decline of 0.8 percent
over the weekly period.