U.S. bond funds post $15.4 billion amid Fed rate hike: Lipper

By Trevor Hunnicutt

NEW YORK (Reuters) - U.S. investors withdrew $15.4 billion from taxable bond funds over the week ended Dec. 16, Lipper said on Thursday, as some funds posted record-setting withdrawals in a week marked by fears over the stability of the bond market.

"We saw some very large redemptions, in fact, we set some records," said Tom Roseen, head of research services for Lipper.

The outflows across mutual funds and ETFs invested in bonds came on a dramatic week that whipsawed funds and markets.

Investors girded themselves for a decision by the U.S. Federal Reserve on interest rates, while Third Avenue Management shut down its Focused Credit Fund, a junk-bond mutual fund, amid fears that the slide in energy prices could lead to more corporate defaults.

The U.S. central bank voted, as expected, to increase the target range on the federal funds rate to 0.25 percent to 0.50 percent, from zero to 0.25 percent.

Some bond funds bounced back from a dramatic selloff. But cash moved out of a number of categories of funds during the week in record-setting amounts.

The $5.1 billion in outflows from investment-grade bond funds were the largest weekly withdrawals from those funds since Lipper's record-keeping figures began in 1992. The second and third largest withdrawals from those funds took place in September as the Fed pondered raising rates. Existing bonds are vulnerable to declining value as rates move up.

High-yield junk bond funds posted $3.8 billion in outflows over the week, their largest outflows since August 2014, Lipper said.

"They were getting out of the way of the Fed," Roseen said of investors. "People are focused on the Third Avenue fund taking it on the chin."

Stock mutual funds' $17.3 billion in outflows during the week were the third-largest on record, data from the fund research service showed.

Most of the largest outflows from those funds have happened in December, suggesting that end-of-year income distributions by funds may have added to the perception of bloodletting, according to Roseen.

Including U.S. listed exchange-traded funds, which took in new money during the week, U.S.-based stock funds posted a net$13.2 billion in outflows, according to Lipper.

Emerging-market funds posted $1.1 billion in outflows during the week, Lipper said, in a seventh consecutive week of cash withdrawals.

Treasury and inflation-protected debt funds survived the carnage, pulling in $539 million and $35 million in new money, respectively. Treasury funds reversed three straight weeks of outflows.

European stock funds advanced their streak of inflows to three weeks, with $455 million in new money. But Japanese stock funds posted outflows of $776 million, their worst result since December 2014.

U.S. based energy-sector stock funds attracted $1.4 billion inflows during the week, their largest haul since April, led by more than a billion in new money that moved into the Energy Select Sector SPDR Fund. Flows into ETFs can be misleading as new shares are sometimes created to satisfy a demand for "shorts," bets that the funds' price will fall.

Low-risk money-market funds also posted outflows of $11.3 billion for the week, reversing inflows from the week prior, Lipper said.

(Reporting by Trevor Hunnicutt; Editing by Chris Reese and Leslie Adler)

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