Investors pulled out a record of USD 23.3 billion out of the funds in the prior week and invested USD 2.11 billion to bond funds in the latest weeks, a data from EPFR Global showed on Friday.
Funds that hold high-yield "junk" bonds gained USD 384 million in new cash in the week ended July 3, recovering from record outflows of USD 6.8 billion the prior week. Emerging market bond funds, meanwhile, suffered outflows of USD 956 million over the week, an improvement from record-high outflows of USD 5.6 billion the prior week.
The inflows into bond funds overall in the week ended July 3 came as three US Federal Reserve policymakers sought to downplay the notion that the central bank would end its accommodative monetary policy any time soon.
Fed Chairman Ben Bernanke triggered a selloff in bond markets on May 22, and reiterated at a press conference on June 19, that the Fed could reduce its USD 85 billion in monthly purchases of Treasuries and agency mortgages stimulus later this year. He added that the central bank could halt its bond-buying program altogether by mid-2014 if the economy looked strong enough.
US bond funds in particular recovered in the latest week, pulling in USD 2.65 billion in new cash after suffering outflows of USD 10.6 billion the prior week. The yield on the benchmark 10-year US Treasury note fell 4 basis points over the week, after having risen roughly 19 basis points the prior week. As yields rise, prices fall.
The yield on the 10-year Treasury jumped to 2.73 percent on Friday, its biggest one-day yield rise in about two years after a Labor Department report showed US employers adding 195,000 jobs in June. The stronger-than-expected report added to sentiment that the Fed will reduce its asset purchases.
"We're not surprised to see money coming in to capture those higher yields," said Tim Ghriskey, chief investment officer of Solaris Group in Bedford Hills, New York, on the latest inflows into bond funds.
Funds that hold Treasury Inflation Protected Securities (TIPS) suffered outflows of USD 323 million over the reporting period, an improvement from outflows of USD 700 million the prior week. Investors pulled USD 636 million out of precious metal funds, notching their 21st straight week of outflows even as spot gold prices rose 2.1 percent.
Investors poured USD 5.98 billion into stock funds over the week, reversing the prior week's USD 13.1 billion outflow. The benchmark S&P 500 stock index rose 0.76 percent over the weekly reporting period, boosted by reassuring statements from Fed policymakers and positive US economic data. Over the week, data showed US manufacturing activity grew in June while construction spending neared a four-year high in May.
Funds that hold Japanese stocks had inflows of USD 894 million over the week, up from cash gains of USD 500 million the prior week and marking the strongest turnout for the funds since late May, according to EPFR Global. Japan's Nikkei average rallied 9.52 percent over the reporting period, partly buoyed by the strong US economic data.
Ghriskey of Solaris said some investors are bargain-hunting in Japanese stocks. The Bank of Japan's monetary stimulus helped boost Japan's Nikkei average 50 percent this year through May 22, but volatility has brought the index down over 8 percent since then.
"There are traders that love the volatility that we're seeing in certain asset classes. The Japanese stock market is certainly one of those," said Ghriskey of Solaris.
US-based bond funds gain
Funds based solely in the United States saw a similar inflows to funds based worldwide in the latest week, according to data released Friday from Lipper, a Thomson Reuters service. According to Lipper, US-based bond funds attracted about USD 3.32 billion in new cash over the same weekly period tracked by EPFR Global.
Those inflows into bond funds broke a four-week streak of outflows and showed the highest investor demand for bonds in eight weeks.
US-based funds that hold riskier "junk" debt had USD 448.81 million in inflows over the latest week, ending five straight weeks of outflows. Prices on high-yield debt rose over the week, with the yield-to-worst on the Barclays US Corporate High Yield Index falling 27 basis point to 6.60 percent.
Yield-to-worst indicates the lowest potential yield on a bond without the issuer defaulting.
Higher-rated investment-grade corporate bond funds, meanwhile, attracted USD 895.8 million in new cash over the week, reversing outflows of USD 2.3 billion the prior week.
"People surmised that the bond market had overshot in declining prices and rising yields," said Jim Awad, managing director at Zephyr Management in New York. He said investors sought corporate bonds as their prices looked cheap.
Municipal bond funds suffered outflows of USD 870.4 million over the week, but still showed improvement after record-high outflows of USD 4.53 billion the prior week.
US-based stock funds reaped inflows of USD 4.66 billion over the week, reversing outflows of USD 6.8 billion the prior week. Investors gave USD 3.04 billion to stock mutual funds, the most since mid-May, and committed about USD 1.62 billion to stock exchange-traded funds.
ETFs are generally believed to represent the investment behavior of institutional investors, while mutual funds are thought to represent the retail investor.
US-based funds that hold Japanese stocks saw inflows of USD 504.6 million over the week, the first cash gains into the funds after four consecutive weeks of outflows. US-based commodities and precious metal funds, meanwhile, saw outflows fall to USD 92.6 million from outflows of USD 1.57 billion the prior week.
Funds that hold emerging market stocks had inflows of USD 1.65 billion over the week, the most since early February and trouncing inflows of USD 83.6 million the prior week. The MSCI world equity index rose 1.06 percent over the week.
"By most historical measures, the feeling is that they are almost as cheap as they've ever been," Awad of Zephyr Management said on emerging market stocks.
The weekly Lipper fund flow data is compiled from reports issued by US-domiciled mutual funds and exchange-traded funds.
READ MORE ON bond funds, pull out, investors, sentiment, emerging markets, junk bonds, high yields, EPFR Global
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