Government bond mutual funds are seeing record outflows after speculation on Fed tapering sent investors running, while alternative fixed-income exchange traded funds have been thrown into the limelight.
According to TrimTabs Investment Research, investors pulled $70.7 billion out of bond funds this year, reports Charles Stein for Bloomberg. If investors don’t dive back into bonds in the next couple of weeks, redemptions would surpass the previous record $62.5 billion investors took out of bond mutual funds in 1994.
Investors have exited bond funds since May when the Fed hinted at easing its accommodative measures. Yields on the benchmark 10-year Treasury notes have jumped over 120 basis points from the May low.
“The ‘taper talk’ that started in May proved to be a huge inflection point for the credit markets,” David Santschi, chief executive officer of TrimTabs, said.
Investors reacted differently to various areas in the fixed-income fund market. For instance, intermediate-term bond funds, the most popular category in fixed-income, saw $63.4 billion in withdrawals through October. The iShares 7-10 Year Treasury Bond ETF (NYSEArca: IEF) saw $518.9 million in outflows so far this year.
Morningstar data reveals that municipal bond funds experienced $43.9 billion in outflows as investors reacted to fiscal problems in Puerto Rico and the Detroit bankruptcy. The iShares National AMT-Free Muni Bond ETF (NYSEArca: MUB) saw $226.8 million in net redemptions year-to-date. [Muni Bonds, ETFs Experience Heavy Outflows]