As investors rush to exit, $68 billion leaks from US bond funds in 2022


U.S. bond funds have suffered the worst period of sustained outflows since the 2013 “taper tantrum” panic, with about $67.8 billion out of mutual funds and exchange-traded funds already this year, according to Barclays researchers.

A historically bad streak for U.S. fixed income was met with dramatic outflows from bond funds, starting a year ago in November (see gray area in chart below) when the Federal Reserve started warning that higher interest rates and a smaller balance sheet would be needed to fight high inflation.

Bond funds see worst period of outflows since 2013

EPFR, Bloomberg, Barclays Research

TMUBMUSD10Y of the 10-year Treasury yield,
The surge above 3.5% coincided with bond outflows, except for a short period this summer when hopes of a Fed policy pivot away from sharply higher rates briefly dwindled. entered the financial markets.

See: Bond markets facing historic losses worry about Fed ‘not blinking yet’

“The latest flows bring total year-to-date outflows to $67.8 billion, after peaking at $82 billion at the end of June – one of the largest bond outflows of the past decade,” the Barclays researchers wrote on Tuesday.

The exodus through Oct. 5 followed last year’s cumulative inflows of around $350 billion into bond funds (see chart), bank loans, inflation-protected and equity-backed bond funds mortgages seeing the largest outflows so far in 2022, according to Barclays researchers Samuel Comte and Anshul Pradhan.

Funds fueled by 2021 inflows are seeing a sharp turnaround this year

EPFR, Barclays Research

However, with bond yields approaching levels last seen during the 2008 financial crisis, the past week has also seen inflows into short-term government, long-term corporate and high-end bond funds. performance, according to the Barclays team.

Yields for the ICE BofA US Corporate Index were pegged at 5.7% at the kick of the week, the highest since 2009, but closer to 9% for the high-yield index.

Individuals often gain exposure to corporate bonds through exchange-traded funds. Largest iShares iBoxx $ Investment Grade Corporate Bond ETF LQD,
for highly rated debt was down about 23% on the year through Tuesday, according to FactSet. The large iShares iBoxx $ High Yield Corporate Bond ETF HYG,
for speculative-grade or “junk” bonds, fell about 18%.

The Fed has already raised its key rate to a range of 3% to 3.25% this year, from 0% to 0.25% a year ago, with another large rate hike expected in November.

US stocks closed mixed on Tuesday, with the S&P 500 SPX index,
down 0.7% and the Dow Jones up 0.1% as investors focused on Thursday’s consumer price index for September, with summer readings showing inflation near a high of 40 years.

Lily: Fed Mester Says Bigger Risks Come From Too Low Rate Hike


Comments are closed.