Thursday, June 27, 2013

The Rout in Bond Funds

The stock market has stumbled in recent weeks, but the bond market has been faring even worse. With long-term rates climbing by about 1 percent since the beginning of May, bond prices - which, remember, move in the opposite direction of their yields - have been plummeting. In the past month, every single fixed-income category tracked by Morningstar has posed a negative return.

And bond investors have been rushing to get out of the market. Through the first three weeks of June, bond mutual funds and ETFs have had $62 billion pulled out of them. That's already $20 billion more than the previous record for bond outflows in a month, set back in October 2008, in the midst of the financial-sector collapse.

Prior to June, there had been $115 billion deposited in bond funds and ETF this year. So the June withdrawals have already wiped out roughly half of this year's new fixed-income assets.

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