NEW YORK (Reuters) - Investors worldwide pulled $10.3 billion out of bond funds in the week ended June 17 after a spike in yields earlier this month spooked debt investors, data from a Bank of America Merrill Lynch Global Research report showed on Friday.
It marked the biggest weekly outflows from the funds in two years, according to the report, which also cited data from fund-tracker EPFR Global. Investment-grade bond funds posted $2.1 billion in outflows, marking their first outflows in 78 weeks, while riskier high-yield bond funds posted $4 billion in outflows to mark their biggest withdrawals since last December.
Government bond funds, which invest largely in U.S. Treasuries, posted $2.8 billion in outflows to mark their eighth straight week of withdrawals, or their longest outflow streak since October 2013, according to the report.
Stock funds attracted $10.8 billion to mark their biggest inflows in three months. Funds that specialize in U.S. shares attracted $6 billion of the total inflows to mark their strongest demand in 13 weeks.
Appetite also surged for funds that specialize in Japanese and European shares, which attracted $3.5 billion and $1.8 billion, respectively. The inflows into European stock funds were the biggest in four weeks.
Analysts said the outflows from bond funds were likely a reaction to U.S. Treasury yields hitting multi-month highs earlier this month after data for May showed the biggest gain in U.S. nonfarm payrolls since December. The data led traders to move their bets on when the Federal Reserve will start to hike rates, a move which is expected to hurt bond prices, to October.
Benchmark 10-year Treasury yields, which hit their highest level since Oct. 1 of 2.5 percent on June 11, were also tracking German 10-year Bund yields higher as those yields rose above 1 percent for the first time since September on June 10. Yields move inversely to prices.
“It’ll take some time for the average investor to regain his confidence in the stability in the bond market,” said Robbert Van Batenburg, director of market strategy at Newedge in New York.
He said investors likely rotated cash out of bond funds and into stock funds on recent data showing strength in the U.S. economy, including the U.S. jobs data, and the view that stocks will perform better than bonds when the Fed hikes rates.
The benchmark S&P 500 stock index is up about 0.7 percent so far this month through Thursday.
Reporting by Sam Forgione; Editing by Chizu Nomiyama and Andrew Hay