Investors find love for bonds again, except for munis

October 20, 2016 5:41 PM EDT

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By Trevor Hunnicutt

NEW YORK (Reuters) - U.S.-based bond funds charged back into the good graces of investors during the latest week, attracting $3.4 billion, Lipper data showed on Thursday.

Investors pulled the same amount from U.S.-based stock funds during the seven days through Oct. 19, the research service said.

The week also marked a dour milestone for municipal bond funds, which broke a streak of inflows that lasted 54 weeks and showered more than $60 billion into a debt market that finances U.S. cities and states.

By contrast, investment-grade corporate debt funds rebounded, taking in $2.4 billion of cash after $666 million in outflows the week before, the data showed.

The bonds have been popular this year for investors seeking refuge from perceived risks in other markets even though a potential U.S. rate hike this year could slice bond prices.

"It may be that equities are so distasteful, and bonds offer better returns than money markets," said Pat Keon, research analyst for Thomson Reuters Lipper.

Money market funds recorded $7.7 billion in outflows during the same period, the data showed. Investors park cash in those funds, but they have been moving money elsewhere as U.S. regulatory reforms took effect on Friday requiring some funds to let their share prices float with the market.

Sentiment around stocks was mixed, with stock exchange-traded funds taking in money as mutual funds focused on that market extended a long streak of withdrawals.

The stock withdrawals were focused almost exclusively on funds invested in U.S. equities.

Healthcare sector funds posted $646 million in outflows, bleeding the most cash since May. Hillary Clinton, the Democratic nominee in the Nov. 8 U.S. presidential race, has pushed for lower drug prices in statements that hurt shares of Mylan NV and Valeant Pharmaceuticals International.

Chinese stock funds took in $257 million in their 10th straight week of inflows. Data on Wednesday showed that China's economy grew at a steady 6.7 percent, further easing fears that a "hard landing" for that economy might derail global growth.

(Reporting by Trevor Hunnicutt; Editing by Jennifer Ablan and Andrew Hay)

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