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Taxable bond funds attract money during latest week: Lipper

May 19, 2016 5:48 PM EDT

Traders work on the floor of the New York Stock Exchange shortly after the opening bell in New York April 12, 2016. REUTERS/Lucas Jackson

By Trevor Hunnicutt

NEW YORK (Reuters) - U.S. fund investors deployed money into taxable bond funds and other safer assets in the latest week, Lipper data showed on Thursday, amplifying a rotation from stocks into bonds which has become one of this year's dominant themes.

Taxable bond funds had inflows of $1.5 billion during the week ended May 25, less robust than the $4.9 billion of inflows in the prior week as investors favored only the safest assets such as Treasuries.

Bond investors had been willing to take on more risk in recent weeks. In the prior week ended May 18, there was strong interest in bond funds across the market - from high-yield bonds to emerging-market debt, Treasury, municipal and investment-grade bond funds.

But in the latest week, investment-grade, municipals and Treasury funds attracted inflows, while the more speculative emerging-market debt and high-yield categories both had outflows, the data showed.

Money-market funds, where investors park cash, took in $7.3 billion in the week.

Bond markets have been in flux since the U.S. Federal Reserve signaled it could raise interest rates as soon as June.

But U.S. bonds still offer competitive yields in a bond universe starved for those returns. U.S. taxable bond funds have added $53 billion this year, Lipper figures show.

"We are seeing very large volumes of foreign buying of U.S. corporate bonds," Hans Mikkelsen, head of high-grade credit strategy at Bank of America (NYSE: BAC) Merrill Lynch, said in an email before this week's numbers were released.

Mikkelsen said those flows have helped investment-grade bonds, where fundamentals are "arguably" stronger than high-yield even excluding weaker energy firms hurt by weak oil prices.

U.S.-based stock funds recorded $4.8 billion in withdrawals during the latest week, Lipper said, for a fourth straight week of outflows.

Despite a rally in riskier assets that started in February, there have not been two weeks in a row of inflows for U.S.-based stock funds since November 2015. And the markets have grown more moody in recent weeks, further straining investors' confidence.

European and Japanese stock funds posted a 17th straight week of outflows during the latest week, data from the Thomson Reuters fund research service showed.

The weekly Lipper fund flow data is compiled from reports issued by U.S.-domiciled mutual funds and exchange-traded funds.

The following is a broad breakdown of the flows for the week, including ETFs (in $ billions):

Sector Flow Chg Pct of Assets($ Count

($ blns) Assets blns)

All Equity Funds -4.846 -0.10 5,152.615 11,991

Domestic Equities -1.827 -0.05 3,652.934 8,513

Non-Domestic Equities -3.019 -0.20 1,499.681 3,478

All Taxable Bond Funds 1.502 0.07 2,238.399 6,089

All Money Market Funds 7.257 0.29 2,481.190 1,137

All Municipal Bond Funds 0.950 0.25 373.660 1,41

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



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