April 4, 2019 / 8:31 PM / 2 months ago

UPDATE 2-Huge inflows to U.S. high-yield bond, investment-grade debt funds

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    By Jennifer Ablan
    April 4 (Reuters) - Investors' appetite for risk-taking was
strong in the latest week, as U.S.-based high-yield junk bond
funds attracted more than $2 billion in the week ended
Wednesday, marking the group's fourth consecutive week of
inflows, according to Refinitiv's Lipper research service data.
    Additionally, U.S.-based investment-grade corporate bond
funds attracted over $2.9 billion in the period, extending their
weekly inflow streak since early January, Lipper said.
    Investors' appetite for risk assets and their hunt for yield
intensified after the Federal Reserve on March 20 brought its
three-year drive to tighten monetary policy to an abrupt end.
The Fed abandoned projections for any interest rate hikes this
year amid signs of an economic slowdown, and said it would halt
the steady decline of its balance sheet in September.     
    "Bond funds in general took off ... when the Federal Reserve
announced that it was taking its foot off the brakes - no more
rate hikes until inflation warrants it and the balance sheet
reduction program would be ending," said Pat Keon, senior
research analyst at Lipper.
    In the fourth quarter, high-yield bond funds were the worst
performing fixed-income funds peer group - down 4.54% - and the
best in the first quarter - up 6.56%, Keon noted. 
    "The flip in investor sentiment regarding high-yield funds
can be seen in the group’s fund-flows results, as they had net
outflows of $20.7 billion in Q4 - second worst quarterly net
outflow ever - and they have taken in $14.3 billion in net new
money in Q1 - the second best quarterly net inflow ever," Keon
said. 
    Leveraged loan funds have been in a prolonged slump,
however. Keon said they have had 20 straight weeks of outflows
during which time they have seen over $24 billion in cash
withdrawals. "Unlike the rest of the fixed-income universe, it
is a negative for loan funds when the Fed holds rates static -
or decreases rates," Keon said. "This is because loans have
floating rates that benefit from interest rate hikes."
    U.S.-based stock funds also posted another rough week. U.S.
equity funds and domestic equity funds saw cash withdrawals of
$3.9 billion and $3.8 billion, respectively. In the previous
week, U.S. equity funds and domestic equity funds posted
outflows of over $11 billion and $10.23 billion, respectively.
    
    The following is a breakdown of the flows for the week,
including mutual funds and ETFs:
    
 Sector                   Flow      Pct of  Assets     Count
                          Change    Assets  ($ blns)   
                          ($ blns)                     
 All Equity Funds         -3.902    -0.05   7,382.897  12,097
 Domestic Equities        -3.825    -0.07   5,242.661  8,589
 Non-Domestic Equities    -0.077    -0.00   2,140.235  3,508
 All Taxable Bond Funds   3.694     0.13    2,866.557  5,956
 All Money Market Funds   1.435     0.05    2,978.000  1,011
 All Municipal Bond       0.714     0.16    454.621    1,400
 Funds                                                 
 
 (Reporting by Jennifer Ablan; Editing by Dan Grebler and Chris
Reese)
  
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