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U.S. bond funds see biggest weekly outflow in four weeks

·2 min read
Illustration shows U.S. dollar banknotes

(Reuters) - U.S. bond funds witnessed huge outflows in the week to Sept. 21 as caution over the pace and length of U.S. interest rate increases crept in ahead of the Federal Reserve's policy decision.

According to Refinitiv Lipper data, U.S. bond funds recorded outflows worth $7.33 billion in their biggest weekly net selling since Aug. 24.

GRAPHIC: Fund flows: US equities, bonds and 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 rate by 75 basis points on Wednesday, the third such rise in a row, and officials project rates hitting 4.4% this year, which was 100 bps higher than what the Fed had projected three months ago.

The 10-year benchmark treasury yield hit a 12-year high of 3.829% on Friday and it is set for an eighth weekly increase as investors position for more aggressive U.S. interest rate increases to come.

U.S. short/intermediate investment-grade, high yield, and general domestic taxable fixed income funds, all faced outflows, worth $3.59 billion, $1.81 billion and $692 million respectively.

However, government bond funds received $3.02 billion in a fourth straight week of inflows.

GRAPHIC: Fund flows: US bond funds https://fingfx.thomsonreuters.com/gfx/mkt/byvrjgzxove/Fund%20flows%20US%20bond%20funds.jpg

Meanwhile, U.S. equity funds secured $3.99 billion in net buying after facing outflows for four successive weeks.

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

"Value funds are generally less interest rate sensitive than growth funds, which has led to less day-to-day volatility and better performance as rates moved up over the course of 2022," said Michael Crook, chief investment officer at Mill Creek Capital Advisors.

"We expect value stocks to continue outperforming growth stocks until the Fed hiking cycle has finished, which might be well into 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 sector specific funds, tech and utilities obtained $401 million and $272 million respectively, but financials recorded outflows of $1.81 billion.

Meanwhile, investors purchased safer money market funds of $27.6 billion, marking their biggest weekly net buying since May 25.

GRAPHIC: Fund flows: US equity sector funds https://fingfx.thomsonreuters.com/gfx/mkt/jnvwemqjnvw/Fund%20flows%20US%20equity%20sector%20funds.jpg

(Reporting by Gaurav Dogra and Patturaja Murugaboopathy in Bengaluru)