U.S. bond funds nab most cash in nearly a year: ICI

By Trevor Hunnicutt

NEW YORK (Reuters) - U.S. fund investors returned in force to bonds during the latest week, putting the most cash in debt markets in almost a year, Investment Company Institute (ICI) data showed on Wednesday.

Bond mutual funds and exchange-traded funds (ETFs) snagged $9.3 billion in new cash during the week ended Jan 16, the most since late January 2018, the trade group said.

Federal Reserve Chairman Jerome Powell and other U.S. monetary policy officials have made it clear in recent weeks that they are ready to stop raising interest rates and tightening lending conditions, a salve to investors in speculative assets.

"It speaks to an assumption that the Fed is going to take its foot off the accelerator and that growth is not going to be that bad either," said Kristina Hooper, global market strategist at Invesco Ltd.

A resurgence in bond buying is helping corporate credit markets in 2019's first weeks after the year prior was clouded by fears that companies got in over the heads borrowing to buy other companies and to buy their own shares back.

Investors now demand just 3.2 percent in extra yield for a speculative "BB" rated corporate bond coming due in five years compared to a similar U.S. Treasury. That figure was 3.7 percent at the end of 2018, according to a Thomson Reuters index.

Hooper said fourth-quarter U.S. corporate earnings are beating deflated expectations, and that development is better than the alternative. Some 76 S&P 500 companies have reported earnings so far, with three quarters of them turning in profits above Wall Street's expectations.

Yet fund investors' demand for stocks was spottier during a week that included data about China's exports unexpectedly falling the most in two years in December. U.S.-based equity funds recorded $2.8 billion in withdrawals after attracting $11.3 billion the week prior.

The drop in China's exports pointed to further weakening of the world's second-largest economy and faltering global demand while Beijing and Washington negotiate a trade conflict.

(Reporting by Trevor Hunnicutt; editing by Diane Craft)

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