US bond funds see biggest weekly outflow in four weeks

US bond funds see biggest weekly outflow in four weeks

(Reuters) – US bond funds experienced massive outflows in the week ending September 21 as caution about the pace and length of US interest rate increases crept in ahead of the Federal Reserve’s monetary policy decision.

According to Refinitiv Lipper data, US bond funds posted $7.33 billion in outflows in their biggest weekly net sale since August 24.

Graphic: Fund Flows: US Stocks, Bonds, Money Market Funds https://fingfx.thomsonreuters.com/gfx/mkt/gdvzyxzklpw/Fund%20flows%20US%20equities%20bonds%20and%20money%20market%20funds.jpg

The Federal Reserve raised its benchmark interest rate by 75 basis points on Wednesday, the third such hike in a row, and officials expect rates to reach 4.4% this year, 100 basis points higher than what the Fed forecast three months ago.

The benchmark 10-year Treasury yield reached a 12-year high of 3.829% on Friday, and is set to rise to its eighth weekly increase as investors position themselves on sharper increases in US interest rates going forward.

US short/medium investment grade, high yield, and general taxable domestic fixed income funds faced outflows of $3.59 billion, $1.81 billion, and $692 million, respectively.

However, government bond funds received $3.02 billion in the fourth consecutive week of inflows.

Graphic: Fund Flows: US Bond Funds https://fingfx.thomsonreuters.com/gfx/mkt/byvrjgzxove/Fund%20flows%20US%20bond%20funds.jpg

Meanwhile, US equity funds secured $3.99 billion in net buying after facing outflows for four consecutive weeks.

Value funds, which invest in companies with cheaper valuations and stable growth, gained inflows of $731 million, while growth funds attracted $321 million in their first weekly inflow since August 10.

β€œValue funds are generally less interest rate sensitive than growth funds, resulting in lower daily volatility and better performance as prices rise over 2022,” said Michael Crook, chief investment officer at Mill Creek Capital Advisors. .

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“We expect value stocks to continue to outperform growth stocks until the Fed’s raising cycle ends, which could be until 2023 or even 2024.”

Graphic: Fund Flows: US Growth and Value Funds https://fingfx.thomsonreuters.com/gfx/mkt/zgpomoqaopd/Fund%20flows%20US%20growth%20and%20value%20funds.jpg

Among the sector-specific funds, technology and utilities received $401 million and $272 million, respectively, but cash outflows were $1.81 billion.

Meanwhile, investors bought $27.6 billion in safer money market funds, marking their biggest weekly net purchase since May 25.

Graphic: Fund Flows: US Equity Sector Funds https://fingfx.thomsonreuters.com/gfx/mkt/jnvwemqjnvw/Fund%20flows%20US%20equity%20sector%20funds.jpg

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