January 4, 2017 / 5:42 PM / in 9 months

U.S.-based bond funds score 1st net inflow week since election -ICI

By Trevor Hunnicutt
    NEW YORK, Jan 4 (Reuters) - U.S.-based bond funds netted
cash for the first time since the U.S. election shook the
fixed-income market, Investment Company Institute data released
on Wednesday showed.
    Bond mutual funds and exchange-traded funds gathered $1.9
billion in the seven days through Dec. 28 as strong demand for
taxable bonds offset a two-month municipal debt fund sell-off,
ICI said.
    It was the first week of net inflows for the funds since the
week through Nov. 9, according to the trade group.
    Stocks have rallied on the potential for lower U.S.
corporate taxes and fewer regulations, after the Nov. 8 election
gave Republicans who support such policies control of the
presidency and the U.S. Congress.
    But many bond prices have sunk as investors fear those
policies could spark inflation, the bane of the fixed income
market.
    That sell-off reignited long-running predictions of what is
known in financial markets as a "great rotation" from bonds to
stocks.
    While some money has moved out of bonds, funds have also
rotated from munis and Treasuries, which lose value when rates
rise, to other fixed-income products.
    These include floating-rate corporate debt funds, which pay
more interest as rates rise, and "hedged" and "low duration"
products also designed to do better in that environment.
    "There was a little bit of a rally going into year-end, and
that helped fixed-income flows," said Sebastian Mercado, ETF
strategist at Deutsche Bank. "And we're seeing a steady rotation
from rates into floating-rate products."
    Taxable bonds took in $4.7 billion during the latest week,
while municipal bonds reported $2.7 billion in outflows, ICI
said.
    Stock funds attracted $1.4 billion, with that about evenly
split between domestic and international equity funds.    
    Commodity funds, hurt by a gold sell-off since the election,
saw outflows slow to just $240 million in withdrawals from an
average of $1.3 billion over the six prior weeks.
    Gold is highly sensitive to higher rates, which diminish the
appeal of holding an asset that pays no interest. Higher rates
also boost the dollar, in which the metal is priced.
    The following table shows estimated ICI flows, including
ETFs (all figures in millions of dollars):
              12/28   12/21   12/14    12/7  11/30/2016
 Equity       1,376   1,435  19,924   5,372       2,716
 -Domestic      687     190  18,636   2,959       2,779
 -World         689   1,244   1,288   2,413         -63
 Hybrid      -1,087  -2,032  -6,657  -1,423        -984
 Bond         1,912  -2,191    -951    -173      -4,088
 -Taxable     4,652   1,723   2,564   4,208        -624
 -Municipal  -2,740  -3,914  -3,515  -4,381      -3,463
 Commodity     -240    -936    -576  -1,724        -854
 Total        1,961  -3,724  11,740   2,052      -3,210
 
 (Reporting by Trevor Hunnicutt; Editing by Richard Chang)

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