U.S.-based bond funds post fourth straight week of outflows: ICI

By Sam Forgione

NEW YORK (Reuters) - Investors in U.S.-based mutual funds pulled $2.3 billion out of bond funds in the week ended Aug. 19 on continued expectations for a Federal Reserve interest rate hike, data from the Investment Company Institute showed on Wednesday.

The outflows marked the first four-week stretch of withdrawals from bond funds since October of last year, according to the data from ICI, a U.S. mutual fund trade organization.

All of the outflows from bond funds in the latest week were from funds that hold taxable bonds, while funds that specialize in tax-free municipal debt attracted a meager $50 million to mark their first inflows in four weeks.

Stock funds overall posted $554 million in outflows after attracting $1.6 billion in the previous week. While funds that specialize in international shares attracted the most new cash in four weeks at $4.7 billion, funds that mainly hold U.S. stocks posted $5.2 billion in outflows.

The outflows from bond funds likely occurred on the view that the Fed would be hiking rates soon, said David Keeble, global head of interest rates strategy at Credit Agricole in New York. He said investors were leaving high-yield bond funds on the view that the yields were too low for the risk.

The Fed's rate hikes are expected to hurt bond prices, which move inversely to yields. While many investors still expected the Fed to hike in September as of the end of ICI's reporting period, market turmoil has since reduced expectations for a September hike.

Funds that specialize in international shares have attracted fresh demand from investors every week so far this year, while funds that mainly hold U.S. stocks have lost fans with outflows over every week since early March.

Hybrid funds, which can invest in stocks and fixed income securities, posted $361 million in outflows to mark their third straight week of withdrawals.

(Reporting by Sam Forgione; Editing by Jennifer Ablan and Chris Reese)

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