U.S.-listed bond mutual funds and exchange-traded funds (ETFs) saw record monthly redemptions of $61.7 billion through June 24 amid signs the country’s central bank may scale back its unprecedented stimulus.
The redemptions surpassed the previous monthly record of $41.8 billion, set in October 2008, according to an e-mailed statement by TrimTabs Investment Research in Sausalito, California. Investors withdrew $52.8 billion from bond mutual funds and $8.9 billion from ETFs during the period, said Richard Stern, a spokesman for TrimTabs.
Bond funds worldwide have experienced withdrawals this month after Federal Reserve Chairman Ben S. Bernanke told Congress on May 22 that the central bank’s policy-setting board could start reducing its bonds purchases in “its next few meetings,” if the U.S. employment outlook shows sustained improvement. Bernanke told reporters in Washington on June 19 that the Fed is prepared to begin phasing out bond buying later this year and halt purchases around mid-2014 as long as the economy meets its forecast.
“The unprecedented liquidation of bonds this month is a dramatic departure from recent trends,” David Santschi, chief executive officer of TrimTabs, said in the statement. “Before June, bond funds had posted inflows for 21 consecutive months.”
Individual investors typically own bonds through mutual funds while institutional investors are big buyers of ETFs, which can be traded throughout the day like stocks.
The Investment Company Institute, a Washington-based trade group, said today that bond mutual funds in the U.S. suffered redemptions of $8 billion in the week ended June 19, compared with $13.5 billion the week before and $10.9 billion in the week ended June 5. ICI’s weekly compilation, which doesn’t include ETFs, covers a different date range compared with TrimTabs. ICI said its estimates are derived from data covering more than 95 percent of industry assets.
Rising rates may trigger hundreds of billions of dollars in redemptions from traditional bond portfolios and funds, according to a report issued last month by Casey, Quirk & Associates LLC. The Darien, Connecticut-based consulting firm estimates that U.S. investors will move $1 trillion from strategies that are pegged to benchmarks and invest in core fixed-income and government bonds.
The yield on the 10-year Treasury note has risen to above 2.5 percent, from 1.93 percent on May 21, the day before Bernanke’s comments, according to data compiled by Bloomberg. Ten-year notes gained for the first time in eight days today, as data showed the U.S. economy grew less than previously calculated in the first quarter. Gross domestic product expanded at a revised 1.8 percent annualized rate from January through March, down from a prior estimate of 2.4 percent, the Commerce Department reported today.
Investors pulled an estimated $1.32 billion from Bill Gross’s Pimco Total Return Fund in May, according to Chicago-based Morningstar Inc. The redemptions at the $285 billion fund, the world’s largest mutual fund, were the first monthly withdrawals since 2011. Gross’s fund is down 4 percent this year, trailing 93 percent of rivals.
The $4.4 billion Pimco Total Return Exchange-Traded Fund has seen redemptions of $642 million since May 21, data from San Francisco-based IndexUniverse show.