Global bond funds register big outflows on rate worries

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(Reuters) - Global bond funds saw their biggest weekly outflows in more than a month on concerns that U.S. and European central banks will keep interest rates higher for longer to curb inflationary pressures.

Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., September 28, 2023. REUTERS/Brendan McDermid

The U.S. Federal Reserve surprised markets last week by suggesting more tightening might be in the pipeline, while the European Central Bank and the Bank of England have signalled a prolonged period of higher rates in policy meetings since the middle of the month.

According to LSEG data, global bond funds suffered disposals of $3.25 billion on a net basis, compared with $2.29 billion worth of net purchases in the week before.

High-yield bond funds booked $3.11 billion of net selling during the week, the biggest outflow in six months. Investors also shed $300 million worth of corporate bond funds while pouring about $2.35 million into government bond funds.

The yield on 10-year Treasury notes rose to 4.688% this week, a level not seen since October 2007. That surge in yields also hit demand for equity funds.

Data showed global equity funds experienced a net $10.7 billion worth of outflow, the biggest in a week since Aug. 23.

Regionally, U.S. and European equity funds saw outflows of $11.69 billion and $3.5 billion, respectively, but investors allocated about $4.93 billion worth of capital to Asian funds, the largest amount since May 2021.

Sectoral equity funds lost about $4.2 billion in outflows, the most since September 2022, with healthcare, consumer discretionary and financial sectors leading withdrawals.

Global money market funds also remained out of favour, witnessing outflows to the turn of $22.32 billion, the biggest amount since July 12.

Among commodities, precious metal funds had $1.31 billion in outgo, their 18 straight weeks of outflow. Energy funds, however, received $105 million, their first weekly inflow in three weeks.

Data for emerging markets comprising 28,251 funds showed that equity funds’ outflows stood at $3.7 billion, the highest since June 7. Bond funds also suffered net selling worth about $2 billion.

Reporting by Gaurav Dogra and Patturaja Murugaboopathy in Bengaluru; Editing by Anil D’Silva


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