Bond mutual funds are headed for record redemptions in 2013 amidsignals the U.S. Federal Reserve will reduce its stimulus.

Investors have removed $70.7 billion so far this year from bondfunds, TrimTabs Investment Research said today in an e-mailedstatement. Unless the trend reverses, the redemptions would surpassa record $62.5 billion that investors removed from bond mutualfunds in 1994, according to TrimTabs.

Investors have been pulling money from bond funds since May,when Federal Reserve Chairman Ben S. Bernanke first hinted that thecentral bank might begin scaling back its unprecedented assetpurchases. The yield on the 10-year Treasury note is 2.8 percent,up from 1.93 percent on May 21, the day before Bernanke spoke aboutthe possibility of tapering its stimulus.

“The 'taper talk' that started in May proved to be a hugeinflection point for the credit markets,” David Santschi, ChiefExecutive Officer of TrimTabs, said in today's statement, whichdidn't provide details of redemptions across various categorieswithin fixed income.

Bill Gross's Pimco Total Return Bond Fund, which lost its titleas the world's largest mutual fund in October, had its seventhstraight month of withdrawals in November as investors continued toflee bonds. The $244 billion fund suffered $36.9 billion inestimated redemptions in the first 11 months of the year, accordingto Chicago-based Morningstar Inc.

The flight from bond funds has not affected all categories offixed-income equally. Intermediate-term bond funds, the mostpopular category in fixed-income, experienced $63.4 billion inwithdrawals through October, Morningstar data show. Municipal bondfunds saw redemptions of $43.9 billion as investors reacted to aspate of bad news, including the bankruptcy of Detroit and thefiscal woes of Puerto Rico.

Non-traditional bond funds, which have the flexibility to putmoney into a wide range of investments, attracted $48 billion inthe same 10-month period, while funds that buy bank loans, whoseinterest adjusts higher as rates climb, gathered $57.7 billion,Morningstar data show.

“There is a suggestion that the managers of these funds willoutfox the rising rate environment,” Eric Jacobson, a Morningstaranalyst, said in a telephone interview.

Corporate bonds globally, from the riskiest tomost-creditworthy, are gaining 1.4 percent this year, poised forthe lowest annual returns since the financial crisis in 2008,according to Bank of America Merrill Lynch index data.

Losing Value

Investment-grade bonds, which are losing value this year for thefirst time since the credit seizure, will likely continue decliningin 2014, according to projections from UBS AG and Citigroup Inc.analysts. JPMorgan Chase & Co. analysts forecast thathigh-yield bonds are poised to return 5 percent next year afterposting average annual returns of 18.8 percent since 2008.

Adjusted for the amount of money in bond funds, this year'sexodus from fixed-income funds is smaller in percentage terms thanthe redemptions in 1994. The withdrawals in 2013 amount to about2.1 percent of the money that was in bond funds at the beginning ofthe year, according to data from the Investment Company Institute,a Washington-based trade group. In 1994, redemptions equaled 10percent of the total.

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