December 6, 2018 / 11:16 PM / a month ago

UPDATE 1-U.S. fund investors pull most cash from bonds in five weeks -Lipper

 (Adds details on funds, table, comment, byline)
    By Trevor Hunnicutt
    NEW YORK, Dec 6 (Reuters) - U.S. fund investors showed
skepticism of bonds despite gains in the market, pulling the
most cash from the investments in five weeks, Lipper data showed
on Thursday.
    The $5.5 billion of net withdrawals from U.S.-based bond
mutual funds and exchange-traded funds (ETFs) during the week
ended Dec. 5 came despite strong demand pushing bond prices
higher. The average U.S.-based taxable-bond fund gained 0.21
percent over that period from market performance, according to
the research service.
    U.S.-based bond funds have already posted $64.9 billion in
withdrawals since October, marking the worst quarter since the
same period in 2008, during the financial crisis.
    For the moment, markets appear to be betting on weaker U.S.
economic growth, softer inflation and a slowdown in Federal
Reserve rate hikes. Yields, which fall as a bond's demand rises,
collapsed from 3.26 percent just last month to 2.89 percent on
the benchmark U.S. 10-year Treasury note as of
Thursday. Stocks also sold off this week and U.S.-based equity
funds posted $289 million of withdrawals.
    The market is testing the Fed's willingness to keep hiking
rates and shrinking its cache of bonds bought after the 2007-09
global financial crisis to spur lending and investment, said
Sage Advisory Services Ltd Co President Bob Smith.
    "What the Fed is trying to do is deflate all the balloons in
the party so the kids don't notice it," he said.
    "The equity traders of this world are a little childish
sometimes in terms of what they want, and there can be
tantrums."
    Meanwhile, corporate leverage is near record highs,
according to Fed data, and short-sellers' bets on a decline in
credit are building up in the ETF market.
    During the latest week at least $1 billion poured out of
investment-grade and leveraged-loan funds apiece, according to
the Lipper data. Hundreds of millions more trickled out of
high-yield bonds and Treasuries.
    Emerging market stocks, meanwhile, pulled in $1.5 billion,
the most cash since March. U.S. dollar weakness due to a pause
in Fed hikes could lend a helping hand to countries that
borrowed in greenbacks, making emerging markets one of the few
places to take extra risk at the moment, Smith said.
    The following table shows estimated ICI flows for mutual
funds and ETFs (all figures in millions of dollars):
    
 Sector                    Flow Chg  Pct of    Assets     Count
                           ($ blns)  Assets    ($ blns)   
 All Equity Funds          -0.289    -0.00     6,905.732  12,014
 Domestic Equities         1.178     0.02      4,932.262  8,543
 Non-Domestic Equities     -1.467    -0.07     1,973.470  3,471
 All Taxable Bond Funds    -4.788    -0.17     2,747.671  5,929
 All Money Market Funds    -34.409   -1.45     2,336.036  979
 All Municipal Bond Funds  -0.692    -0.17     420.081    1,422
 
 (Reporting by Trevor Hunnicutt; editing by Jennifer Ablan and
Tom Brown)
  
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