Investors take more risk in bond funds than stocks during week

August 11, 2016 5:37 PM EDT

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By Trevor Hunnicutt

NEW YORK (Reuters) - Investors reversed course and poured money into even the riskiest bonds in the latest week, for inflows into U.S.-based high-yield bond funds of $1.7 billion after two straight weeks of outflows, Lipper data showed on Thursday.

The data reveal fund investors' appetite for yield is pushing them to take risk in bonds rather than domestic stocks, said Pat Keon, research analyst for Thomson Reuters Lipper.

"People are looking for yield," he said. "It's a bull market, but a bull market without much enthusiasm."

Some investors see muted potential for greater returns in stocks with the market reaching record highs, while U.S. corporate debt still offers the potential for some return. That is valuable to investors confronting $11.4 trillion in negative-yielding bonds in the sovereign market alone, Fitch Ratings data showed on Wednesday.

Overall, investors poured $5.2 billion into U.S.-based taxable bond funds in the week to Aug. 10, according to the data. The bond funds have had net inflows in five of the last six weeks.

Encouraging risk takers was a rise in the MSCI All-Country World equity index of 1.4 percent during the seven-day period Lipper measured. And after more than a year without setting new records, the benchmark S&P 500 has reached new peaks consistently after breaking to an all-time high a month ago.

Strong U.S. economic data during the week boosted the probability of a Federal Reserve interest rate hike this year.

Meanwhile, Germany's DAX index jumped to its highest level of 2016 on well-received earnings reports.

The celebratory mood did not lift overall sales for U.S.-based stock funds, which posted $3.8 billion in outflows for the week, the fund research service's data showed. U.S. stock funds have been out of favor most of this year.

(Reporting by Trevor Hunnicutt; Editing by Jennifer Ablan and Leslie Adler)

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