Investors pulled a record amount out of global bond fund this week, fresh evidence that the move away from fixed income continues to gather pace.
A total of $23.3bn was drawn out, the highest weekly outflow figure on record, according to data from EPFR Global, the fund flow data provider. U.S. funds were the worst hit, with withdrawals totaling $10.6bn.
Fed Reducing Asset Purchases
Investors have increasingly moved away from bonds since May 22, when Federal Reserve Chairman Ben Bernanke gave the first signal that the U.S. central bank would begin reducing its asset purchases later this year. Yields on 10-year U.S. Treasuries have risen sharply since then, hitting 2.48 per cent on Thursday compared with 1.62 percent at the start of May.
Emerging Markets Bond Fund Flow
Emerging Markets also suffered, as bond fund redemptions doubled to $5.6bn, a new record high. While year-to-date flows to emerging bond funds are in the black, the past week’s losses represent a third of net 2013 inflows, according to EPFR data cited by banks. Returns are minus 6-8 percent, according to JPMorgan’s benchmark indices.
The withdrawals coincide with huge losses on emerging assets since the US Federal Reserve hinted in May that economic recovery may allow it to start unwinding stimulus.
The sell off gathered pace at the end of the month when worries escalated over Chinese growth, taking emerging equity losses to over 13 percent in the April-June period
Equity Funds Failed to Feel the Benefit
Despite the move out of credit, equity funds failed to feel the benefit, with redemptions hitting $13bn in the week ending June 26, $5.6bn of which came from emerging markets. Japan was the only place to see net equity inflows in the past week.
“Emerging markets have been underperformers for three years. People are throwing in the towel on that basis,” said Markus Rosgen, chief Asia equity strategist at Citigroup. “It’ll drag the market down lower over the course of the summer. But the valuations are getting to a point where the risk reward is actually really quite favourable.”
Bonds, equities and currencies in global emerging markets have fallen sharply in the past month. On Wednesday the Indian rupee slid to a fresh record low against the U.S. dollar, breaking through the Rs60 level for the first time.