U.S. bond funds attract cash, shaking off inflation fears

[January 07, 2017]  By Trevor Hunnicutt

NEW YORK (Reuters) - U.S.-based taxable bond funds netted cash for the first time in four weeks, Lipper data released on Thursday showed, a sign that savers may be less wary than the Federal Reserve of inflation under the incoming Trump administration.

The funds attracted $1.2 billion in the week through Jan. 4, the research service said, even as minutes from the Fed's December meeting released on Wednesday showed concerns that quicker economic growth under President-elect Donald Trump could require faster-than-expected interest rate hikes to ward off inflation.

The central bank's policy-setting committee unanimously raised rates last month by a quarter of a point.

Bonds sold off after the Nov. 8 U.S. presidential election on fears that the new administration's plans to stimulate the economy with tax cuts and infrastructure spending could also stoke bond-harming inflation.

Despite some withdrawals, investor demand for bond mutual funds and exchange-traded fund demand has shown resiliency. After $10.8 billion in withdrawals in November, taxable bond fund outflows were just $5.7 billion in December, Lipper said.

"They still do want yield, and I think they understand it's not time to panic," said Tom Roseen, Thomson Reuters Lipper's head of research services. "If it's slow and steady the rate increases can actually offset the losses we have."

Roseen said investors still need the yields that bonds offer and which rise after a sell-off. Bond yields and prices move inversely.

Investment-grade corporate bond funds took in $2.2 billion during the week, while municipal bond funds, which are especially sensitive to interest rate moves, recorded $912 million in outflows, their eighth week of withdrawals.

Emerging-market debt funds attracted $65 million after seven straight weeks of withdrawals.

The following is a broad breakdown of the flows for the week, including ETFs (in $ billions):

Sector Flow Chg % Assets Assets Count

($blns) ($blns)

All Equity Funds 2.403 0.04 5,466.035 11,611

Domestic Equities 2.453 0.06 3,927.155 8,277

Non-Domestic Equities -0.050 -0.00 1,538.880 3,334

All Taxable Bond Funds 1.234 0.05 2,290.312 5,871

All Money Market Funds -9.029 -0.38 2,342.611 1,025

All Municipal Bond Funds -0.912 -0.26 354.709 1,386

(Reporting by Trevor Hunnicutt; Editing by Bernard Orr and Richard Chang)

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