Are Retail Investors Finally Dumping Bonds?

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Earlier this year, investors showed a lot of enthusiasm for stocks. Global inflows into equity ETFs were up 59.7% in the first two months of this year while inflows into fixed income ETFs were down 79.7%.

But as the year progressed, the so-called “Great Rotation”--from bonds to stocks--appeared to be taking much longer than earlier expected. Though ETF investors showed a clear preference for equity funds, most mutual fund investors continued to put money in bond funds as well. Further, most of the money going into stocks came from the cash lying on the sidelines.

But it appears now that investors are finally ready to dump bonds as there are renewed concerns that the Fed may be getting ready to taper off its bond purchases.

Last month, bond markets saw their fourth worst sell-off in the past twenty years. 10 year treasury yield is now at 2.23%, up sharply from 1.67% at the beginning of May. So retail investors may finally be realizing that the sell-off in bonds could be real.

According to Lipper, investors pulled out $4.3 billion from bond mutual funds—third worst outflow on record, and $4.8 billion out of bond ETFs—the largest outflow largest on record, during the week ended June 5, 2013.

Interestingly, this money did not go into equity mutual funds, which saw withdrawal of $769 million while U.S. stock ETFs attracted inflows of just $161 million.

Do you think that this may be the beginning of the end of 30 year bond market bull run or this sell-off is just another ‘false move’ like the one earlier this year?

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