By Sam Forgione
NEW YORK, June 28 Investors pulled $23.3 billion
out of bond funds in the latest week, the biggest outflow since
records started in 1992, as fears persisted that the U.S.
Federal Reserve might reduce its bond-buying, data from EPFR
Global and Bank of America Merrill Lynch showed on Friday.
Funds that invest in high-yield junk bonds suffered outflows
of $6.8 billion in the week ended on Wednesday. Other outflows
included $4.9 billion from investment-grade corporate bond
funds, $5.6 billion from emerging market bond funds, $4.5
billion from U.S. municipal bond funds, and $1.3 billion from
mortgage-backed securities funds.
Each of those outflow figures marked a record, according to
Bank of America Merrill Lynch and EPFR Global data. The outflows
from U.S. municipal bond funds, mortgage-backed securities
funds, investment-grade corporate bond funds, and high-yield
bond funds were the most since records began in 1992. The
outflows from emerging market bond funds were the most since
records began in 2004.
"This is just the beginning of a reallocation," said Michael
Temple, portfolio manager at Pioneer Investments, which oversees
roughly $216.6 billion in assets globally. Temple said that
fears of rising interest rates in response to the Fed's signals
that it may cut its bond-buying reached a peak during the latest
Fed Chairman Ben Bernanke sparked a selloff in bond markets
when he told Congress on May 22 that the central bank could
reduce its $85 billion in monthly purchases of Treasuries and
agency mortgage bonds later this year. He reiterated on June 19
that the central bank could reduce the purchases later this year
and added that the Fed could end them altogether in mid-2014 if
the U.S. economy looked strong enough.
Temple said that bond managers should expect to see outflows
from their funds over the next year and a half as investors put
more money into U.S. stocks, which he expects will outperform
bonds as corporate revenue growth in the U.S. picks up later
this year and into 2014.
U.S. bond funds were hit hard, with outflows of $10.6
billion. The yield on the benchmark 10-year U.S. Treasury note
rose 19 basis points to 2.54 percent over the week, sending bond
Investors also pulled an additional $700 million out of
funds that hold Treasury Inflation-Protected Securities or TIPS
in the latest week after having pulled $1 billion from them the
Precious metals funds had their 20th straight week of
outflows, at $2.8 billion. The price of spot gold fell 9.3
percent over the week to its lowest in nearly three years, also
on fears that the Fed would rein in its monetary policy.
Funds that hold floating-rate loans remained a bright spot.
Investors put $1.1 billion in new cash into the funds in the
latest week, marking 53 consecutive weeks of inflows, according
to Bank of America Merrill Lynch. Floating-rate loans are
protected from rising interest rates by being pegged to
Global stock funds suffered $13.1 billion in outflows,
reversing inflows of $4.8 billion during the prior week. The
Standard & Poor's 500 stock index fell 1.6 percent over
the reporting period. Funds that hold U.S. stocks suffered
outflows of $3.9 billion, reversing inflows of $7 billion the
Investors also pulled $5.8 billion out of funds that hold
emerging markets stocks. The funds have suffered outflows
amounting to 2.7 percent of total assets in the past four weeks,
according to Bank of America Merrill Lynch.
The MSCI Emerging Markets Index, which measures
the equity market performance in global emerging markets, fell
4.7 percent over the weekly period.
The big outflows from emerging markets stock funds shows
excessive pessimism toward the assets, said Brian Leung, global
equity strategist at Bank of America Merrill Lynch. The
pessimism indicates that emerging markets stocks are moderately
undervalued, and investors should consider buying them, Leung
Investors still put $500 million into Japanese stock funds,
however, marking 23 straight weeks of inflows. The Bank of
Japan's monetary stimulus helped boost Japan's Nikkei average 50
percent this year through May 22, but the index plunged nearly
17.9 percent between May 22 and the end of EPFR Global's weekly
"You're now getting a buy on the dip mentality," said Robert
Francello, head of equity trading for Apex Capital in San
Francisco, on the continued inflows into Japanese stock funds
despite the pullback in the Nikkei average.